(Address, including zip code, and telephone number, including area code, of the registrants principal executive offices)

Kevin Rakin

Chairman and Chief Executive Officer

36 Church Lane

Westport, Connecticut 06880

(203) 682-7222

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Charles K. Ruck, Esq.

B. Shayne Kennedy, Esq.

Matthew T. Bush, Esq.

Latham & Watkins LLP

650 Town Center Drive, 20th Floor

Costa Mesa, California
92626

(714) 540-1235

Luke J. Albrecht, Esq.

Senior Counsel

Advanced BioHealing, Inc.

36 Church Lane

Westport, Connecticut 06880

(203) 682-7222

Kyle Guse, Esq.

K. Amar Murugan, Esq.

McDermott Will & Emery LLP

275 Middlefield Road

Menlo Park, California 94025

(650)
815-7400

Approximate date of commencement of proposed sale to the public: As soon as practicable
after the effective date of this registration statement.

If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ¨

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and
smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Includes the additional shares that the underwriters have the option to purchase to cover overallotments, if any.

(b)

Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) promulgated under the Securities Act of 1933.

(c)

A registration fee of $26,703 was paid previously based on an estimate of the aggregate offering price.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall
become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.

Subject to Completion

Preliminary Prospectus dated May 4, 2011

PROSPECTUS

13,350,000 Shares

Advanced BioHealing, Inc.

Common Stock

This is
Advanced BioHealing, Inc.s initial public offering. We are selling 8,350,000 shares of our common stock and the selling stockholders are selling 5,000,000 shares of our common stock. We will not receive any proceeds from the sale of shares to
be offered by the selling stockholders.

We expect the initial public offering price to be between $14.00 and $16.00 per
share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will trade on the New York Stock Exchange under the symbol ABHB.

Investing in the common stock involves risks that are described in the Risk Factors section
beginning on page 10 of this prospectus.

Per Share

Total

Initial public offering price

$

$

Underwriting discount

$

$

Proceeds, before expenses, to us

$

$

Proceeds, before expenses, to selling stockholders

$

$

The underwriters
may also exercise their option to purchase up to an additional 2,002,500 shares from the selling stockholders at the initial public offering price, less the underwriting discount, for 30 days after the date of this prospectus to cover
overallotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

You should
rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us that we have referred to you. We have not, and the underwriters have not, authorized anyone to provide you with additional or
different information from that contained in this prospectus. If anyone provides you with additional, different or inconsistent information, you should not rely on it. We are offering to sell, and seeking offers to buy, shares of our common stock
only in jurisdictions where offers and sales are permitted. The information in this prospectus may only be accurate on the date of this prospectus.

This summary highlights information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of
the information that may be important to you. You should read this entire prospectus and should consider, among other things, the matters set forth under Risk Factors, Selected Financial Data, Managements
Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and related notes thereto appearing elsewhere in this prospectus before making your investment decision. Unless otherwise noted in this
prospectus, the terms Advanced BioHealing, the Company, we, us, our and our Company refer to Advanced BioHealing, Inc.

Overview

We are a
leading regenerative medicine company that develops, manufactures and commercializes cell-based therapies. Our principal product, Dermagraft, has received a PMA from the U.S. Food and Drug Administration for the treatment of diabetic foot ulcers.
From the commercial launch of Dermagraft in 2007 through December 31, 2010, we sold over 200,000 units of Dermagraft that have been used to treat an estimated 50,000 patients. Our revenue grew from $8.6 million in 2007 to $146.7 million in
2010. We went from generating a loss from operations of $12.8 million and a net loss of $14.0 million, or $35.48 per diluted share of common stock, in 2007 to generating income from operations of $21.0 million and net income of $7.1 million, or
$0.00 per diluted share of common stock, in 2010. For the first quarter of 2011, we had $44.2 million in revenue, $8.1 million in income from operations and net income of $3.9 million, or $0.01 per diluted share of common stock.

Dermagraft is a regenerative bio-engineered skin substitute that assists in restoring damaged tissue and is currently indicated for the
treatment of certain types of diabetic foot ulcers, or DFUs. DFUs are open sores or ulcers on the feet that can occur in people with diabetes as a result of peripheral neuropathy, or damage to the nerves, and can severely compromise a patients
quality of life. DFU patients carry a one-in-seven lifetime risk of developing osteomyelitis, or an infection of the bone, and a one-in-five lifetime risk of amputation, which has an associated 50% five-year mortality rate. Based on industry
sources, we estimate that DFUs affect nearly 900,000 people annually in the United States, of which we estimate approximately 60% to 70% are slow healers that could be treated with Dermagraft based on its approved indication. As a result, we believe
our total addressable market opportunity in the United States is approximately $3 billion.

Dermagraft consists of living
cells and a bioabsorbable mesh scaffold and is used in conjunction with conventional therapy to treat certain types of DFUs. Data from the pivotal clinical trial of Dermagraft completed in 2001 demonstrated that the weekly application of Dermagraft
and conventional therapy for up to eight weeks increased the proportion of DFUs that achieved 100% closure at 12 weeks by 64%, a statistically significant improvement, when compared to the use of conventional therapy alone. No serious adverse events
determined to have been related to Dermagraft were reported in this trial or have been reported in the estimated 50,000 patients that have been subsequently treated with our product.

We manufacture Dermagraft using proprietary cell-based techniques that were developed over a 20-year period with significant capital
investment. The manufacturing of regenerative medicine products is highly complex and involves a number of regulatory challenges, providing a significant barrier to entry for potential competitors. We manufacture our products in a state-of-the-art
facility located in La Jolla, California that is registered with the U.S. Food and Drug Administration, or FDA, and is ISO 13485 (2003) registered.

We employ an in-house commercial team of over 150 professionals, including sales, marketing, reimbursement and policy professionals with backgrounds in the pharmaceutical, medical device and biotechnology
industries. Our direct sales force consists of more than 100 representatives that target hospital-based wound care centers, physician offices, surgery centers and government hospitals. Our team of reimbursement and policy professionals facilitates
coding, coverage and reimbursement for Dermagraft, is responsible for customer support and maintains an ongoing dialogue with policy makers and third-party payors. Coverage for up to eight weekly applications of Dermagraft for the treatment of DFUs
is currently provided by Medicare, more than 1,000 private plans and numerous Medicaid programs.

Our product portfolio includes a potential new indication for Dermagraft for the
treatment of venous leg ulcers, or VLUs, and TransCyte, which has received premarket approval, or PMA, from the FDA for the treatment of certain types of severe burns. We are currently conducting a pivotal clinical trial to assess the efficacy and
safety of Dermagraft in treating VLUs, and we completed enrollment for this trial in November 2010 and expect to report results from the trial in the fourth quarter of 2011. We are aware that two other companies products have recently failed
to achieve the clinical trial results necessary to gain or seek FDA approval for a VLU indication. In 2005, a pivotal clinical trial conducted by Smith & Nephew plc, our predecessor in ownership of the Dermagraft assets, led to the FDAs
denying approval of Dermagraft for the treatment of the indication. We have designed our trial differently than the trial conducted by Smith & Nephew as well as the other failed trials, most importantly in terms of enrollment criteria, and if
our trial is successful, we plan on submitting a supplement to our existing PMA for Dermagraft to the FDA in the first quarter of 2012. Although we have not yet commercialized TransCyte, we believe a potential opportunity exists to market this
product through arrangements with state, federal or international government agencies.

Industry Overview

Diabetes, if left untreated or mismanaged, can cause hyperglycemia, an increase in blood glucose levels, which often leads to a reduction
in blood flow and the development of peripheral neuropathy, most commonly in the feet. Peripheral neuropathy can cause patients to lose sensation in their feet, which may prevent them from noticing injuries, including sores caused by repetitive
trauma, such as blisters resulting from walking, ulcers caused by a single major trauma, such as a severe cut or burn to the foot, and foot problems, such as calluses and hammertoes. If not treated properly, these injuries can develop into DFUs.
Conventional therapy for DFUs consists of debriding, or removing dead tissue or foreign material in order to expose healthy tissue, and cleaning the ulcer, applying a wet-to-dry gauze dressing once per week and using therapeutic, pressure-reducing
footwear.

We believe conventional therapy alone, which can continue for periods ranging from several weeks to several years,
is often inadequate to effectively treat DFUs. A meta-analysis of clinical studies involving approximately 1,400 patients has shown that only 24% of patients that receive conventional therapy alone will achieve full closure of the DFU within 12
weeks. We believe that most of the patients who do not respond to conventional therapy alone are candidates for Dermagraft at some point during the DFU treatment process.

Our Solution

Dermagraft utilizes regenerative medicine to advance and
stimulate the bodys healing process, resulting in quicker healing times and improved ulcer closure rates. We believe that Dermagraft addresses the shortcomings of conventional therapy in healing DFUs, which primarily relies on the bodys
ability to heal itself. Patients suffering from DFUs generally have compromised health. In addition, the cells comprising a DFU have generally ceased dividing and are incapable of providing the necessary proteins or engaging in the necessary
metabolic activity to heal the ulcer. This combination of already compromised health and insufficient cellular activity make it unlikely that a patients body will be able to heal the DFU on its own or when treated with conventional therapy
alone.

Dermagraft is designed to stimulate healing in two primary ways. First, when Dermagraft is placed on the ulcer, its
mesh material is gradually absorbed and the human cells grow into place and replace the damaged skin. Second, the living cells in Dermagraft produce many of the same proteins and growth factors found in healthy skin, which help replace and rebuild
the damaged tissue in the DFU.

Clinical studies have demonstrated that if a DFU is not closed by 50% within the first four
weeks of conventional therapy, there is only a 9% chance the DFU will reach full closure using conventional therapy alone. We believe this data highlights the need for a more effective treatment alternative. Dermagraft used in conjunction with
conventional therapy has demonstrated improved efficacy in healing DFUs as compared to

conventional therapy alone. Data from the pivotal clinical trial of Dermagraft completed in 2001 demonstrated that the weekly application of Dermagraft and conventional therapy for up to eight
weeks increased the proportion of DFUs that achieved 100% closure at 12 weeks by 64%, when compared to the use of conventional therapy alone. Patients treated in the Dermagraft group were 1.7 times more likely to achieve 100% closure than patients
receiving conventional therapy alone. These results demonstrated statistically significant improvements.

Dermagraft is
indicated for use in the treatment of full-thickness DFUs with greater than six weeks duration, which extend through the dermis, but without tendon, muscle, joint capsule or bone exposure. Dermagraft is used in conjunction with conventional therapy
and in patients who have adequate blood supply to the injured foot.

Our Strengths

We believe we are a leader in the field of regenerative medicine and have the following principal strengths:

FDA-approved regenerative medicine products. Our principal product, Dermagraft, has received a PMA from the FDA for
the treatment of DFUs. From launch in February 2007 through December 31, 2010, we sold over 200,000 units of Dermagraft. Given the extensive time and cost typically required to obtain a PMA, we believe our PMA for Dermagraft provides a
significant competitive advantage and establishes a barrier to entry for potential competitors.

Established commercial
infrastructure. Our commercial infrastructure, which consists of an in-house team of over 150 sales, marketing, reimbursement and policy professionals, has been instrumental in beginning to establish living cell-based products as a
new standard of care for the treatment of DFUs and in demonstrating the clinical benefits of Dermagraft. We believe our ability to meet the challenges in building a commercial organization around a regenerative medicine product, such as Dermagraft,
has been critical to our success.

Experience in scalable cell-based manufacturing. Manufacturing living
cell-based products is a complex process that requires development of a cell bank, extensive testing and validation, a customized manufacturing process, automation and process scale-up and significant training and know-how. We believe our
manufacturing experience and know-how represent a barrier to entry for potential competitors.

Revenue growth and
profitability. We have rapidly grown our revenue and become profitable due in large part to our disciplined approach to deploying our financial resources, including selectively expanding our commercial team as well as making strategic
research and development and capital expenditures. We generated income from operations of $8.1 million, $21.0 million and $8.1 million in 2009, 2010 and the first quarter of 2011, respectively, which has allowed us to fund our internal growth
initiatives. We expect to maintain this financial discipline as we execute our business strategy.

Deep management
experience in regenerative medicine.Our management team has an average of over 20 years of experience in the pharmaceutical, biotechnology and medical device industries, including with regenerative medicine products. Our
management team has remained largely unchanged since we acquired Dermagraft in 2006 and launched the product in 2007.

Our Strategy

We intend to further our position as a leader in the field of regenerative medicine. The key elements of our business
strategy are to:

Drive further adoption of Dermagraft for the treatment of DFUs in the United States.We believe the market for regenerative medicine therapy for DFUs remains highly under-penetrated. We intend to increase our market share by increasing sales to our existing customers and expanding our overall customer base.

Obtain FDA approval and launch Dermagraft for the treatment of VLUs in the United
States.We are conducting a pivotal trial evaluating Dermagraft for the treatment of VLUs and, if successful, anticipate submitting a supplement to our existing PMA to the FDA in the first quarter of 2012. We believe we
are well positioned to leverage our existing infrastructure to commercialize Dermagraft for the treatment of VLUs.

Commercialize Dermagraft internationally.We believe the addressable patient population for treating
DFUs and VLUs outside the United States is significantly larger than the addressable patient population in the United States. If we successfully complete our VLU clinical trial and related one-year follow-on study, we intend to file a marketing
authorization application with the European Medicines Agency for a VLU indication in 2013. If successful, this approval would grant us marketing rights in 30 European countries.

Invest in manufacturing and research and development. We continue to invest in improvements to our
manufacturing and quality assurance processes and systems. We also intend to expand our manufacturing capacity, most significantly through the anticipated construction of a second manufacturing facility. In addition, we plan to continue to invest in
research and development in order to expand our product portfolio.

Broaden our product portfolio through internal and
external development initiatives. We may selectively in-license or acquire complementary products and technologies that will allow us to leverage our commercialization and manufacturing experience. In addition, we are evaluating
opportunities to commercialize TransCyte, which has received a PMA from the FDA for the treatment of severe burns, through arrangements with state, federal or international government agencies.

Risks Related to Our Business

Investing in our common stock involves substantial risk. You should carefully consider all of the information in this prospectus prior to investing in our common stock. There are numerous risks related to
our business that are described under Risk Factors and elsewhere in this prospectus. Among these important risks are the following:



Our revenue and financial results depend solely on sales of Dermagraft for the treatment of DFUs;



Dermagraft is a living cell-based product and its manufacturing process is highly complex, and we may be unable to manufacture the product to meet
customer demand;

We rely on a single manufacturing facility and any disruption of operations would materially and adversely affect our business;



We rely on third-party suppliers, some of which are currently the only source for the respective components or materials they supply to us;



If reimbursement from third-party payors for our products becomes inadequate, physicians and patients may be reluctant to use our products and our
sales may decline;



Our current master cell bank from which we propagate units of Dermagraft has a finite useful life that may be shorter than expected, and although we
believe that our master cell bank will continue to provide sufficient cells to meet our projected demand for at least the next five years, we will need to validate a new master cell bank in order to continue to market and sell Dermagraft in the long
term;

We may not receive favorable results from our pivotal clinical trial for the use of Dermagraft in the treatment of VLUs; and



The sale of our products is subject to regulatory approvals and our business is subject to extensive regulatory requirements. If we fail to maintain
regulatory approvals, or are unable to obtain, or experience significant delays in obtaining, FDA approvals or clearances for our future products or product enhancements, our ability to commercially distribute and market these products could suffer.

Corporate Information

We were incorporated in Delaware in January 2004. Our principal executive offices are located at 36 Church Lane, Westport, Connecticut 06880, and our telephone number is (203) 682-7222. Our website
is located at www.abh.com. Information contained on, or accessible through, our website is not incorporated by reference in, and is not considered part of, this prospectus.

This prospectus contains references to our trademarks Advanced BioHealing®, Dermagraft®, Heal2gether® and TransCyte® among others. All other trademarks or tradenames referred to in this prospectus are the property of their respective
owners.

All references in this prospectus to Dermagraft for the treatment of DFUs or any variation thereof refer to the
approved indication of Dermagraft, which is the treatment of full-thickness DFUs greater than six weeks duration, which extend through the dermis, but without tendon, muscle, joint capsule or bone exposure. Coverage for up to eight weekly
applications of Dermagraft for the treatment of DFUs is currently provided by Medicare, more than 1,000 private plans and numerous Medicaid programs.

The selling stockholders have granted the underwriters an option to purchase up to 2,002,500 additional shares of our common stock at the initial public offering price for a period of 30 days
after the date of this prospectus.

Use of proceeds

We intend to use the net proceeds from the sale of shares by us for the development of a second manufacturing facility, for working capital and other general corporate purposes and to
potentially repay the outstanding balance on our existing term loan. See Use of Proceeds.

Proposed New York Stock Exchange symbol

ABHB

Reserved share program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to 417,500 shares of common stock offered by this prospectus to our directors, officers,
employees and affiliates of such persons.

Risk factors

See Risk Factors beginning on page 10 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

The number of shares of our common stock to be outstanding after completion of this offering is based on
31,471,585 shares outstanding as of April 2, 2011 and excludes:



9,003,143 shares of common stock issuable upon the exercise of options outstanding as of April 2, 2011, at a weighted average exercise price
of $1.42 per share;



932,056 shares of common stock issuable upon the exercise of warrants outstanding as of April 2, 2011, at a weighted average exercise price
of $1.39 per share; and



4,923,032 shares of common stock reserved for issuance under our employee benefit plans, of which 826,065 shares and 137,808 shares of common stock
will be issuable upon the exercise and vesting of options and restricted stock units, respectively, approved by our board of directors and that will be granted effective as of the day prior to the public trading date of our common stock, plus annual
scheduled increases in the number of shares reserved for issuance under our Equity Incentive Award Plan and Employee Stock Purchase Plan.

Unless we specifically state otherwise, all information in this prospectus assumes:



no exercise of the overallotment option in favor of the underwriters;



an initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus;



the automatic conversion of all outstanding shares of our preferred stock into 27,085,638 shares of common stock upon the completion of this offering
pursuant to the provisions of our certificate of incorporation currently in effect;



the issuance of 3,650,955 shares of common stock as a result of the expected net exercise or cash exercise of outstanding warrants in connection with
the completion of this offering, assuming an initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus;



no exercise of outstanding options since April 2, 2011;



a 2.61-for-1 stock split of our outstanding common stock effected in May 2011; and



the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, which will occur at or prior
to the completion of this offering.

The following table sets forth a summary of our historical financial data for the periods ended or as of the dates indicated. We have
derived the summary statements of operations data for the fiscal years ended December 27, 2008, January 2, 2010 and January 1, 2011 from our audited financial statements appearing elsewhere in this prospectus. We have derived the
summary statements of operations data for the 13 weeks ended April 3, 2010 and April 2, 2011 and the summary balance sheet data as of April 2, 2011 from our unaudited interim financial statements appearing elsewhere in this prospectus. The unaudited
interim financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our
financial position as of April 2, 2011 and our results of operations for the 13 weeks ended April 3, 2010 and April 2, 2011. You should read the summary financial data set forth below together with our financial statements and the accompanying
notes, Selected Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this prospectus. Our historical results are not necessarily indicative of
our future results.

Fiscal Years Ended

13 Weeks Ended

December
27,2008

January 2,2010

January 1,2011

April 3,2010

April 2,2011

(unaudited)

(in thousands, except share and per share amounts)

Statements of operations data:

Revenue

$

44,753

$

85,459

$

146,718

$

29,544

$

44,185

Cost of revenue

16,008

20,066

30,806

5,598

8,830

Gross profit

28,745

65,393

115,912

23,946

35,355

Operating expenses

Research and development

1,002

7,741

17,071

3,348

3,319

Sales, marketing and administrative

28,869

49,516

77,848

16,863

23,911

Total operating expenses

29,871

57,257

94,919

20,211

27,230

Income (loss) from operations

(1,126

)

8,136

20,993

3,735

8,125

Other expense

Interest expense, net

(1,280

)

(2,424

)

(1,635

)

(545

)

(194

)

Change in fair value of preferred stock warrants

(1,318

)

(6,075

)

(12,439

)

(531

)

(1,370

)

Loss from extinguishment of debt





(653

)





Income (loss) before income taxes

(3,724

)

(363

)

6,266

2,659

6,561

Income tax provision (benefit)

146

570

(870

)

2,663

2,643

Net income (loss)

(3,870

)

(933

)

7,136

(4

)

3,918

Accretion of redeemable convertible preferred stock

(4,539

)

(5,712

)

(6,507

)

(1,538

)

(1,756

)

Net income allocable to preferred stockholders





(614

)



(2,105

)

Net income (loss) attributable to common stockholders

$

(8,409

)

$

(6,645

)

$

15

$

(1,542

)

$

57

Net income (loss) per share attributable to common stockholders:

Basic

$

(16.30

)

$

(11.28

)

$

0.02

$

(2.59

)

$

0.08

Diluted

$

(16.30

)

$

(11.28

)

$

0.00

$

(2.59

)

$

0.01

Weighted average shares outstanding:

Basic

516,004

589,033

667,765

596,225

734,992

Diluted

516,004

589,033

5,615,394

596,225

5,875,824

Pro forma net income per share attributable to common stockholders (unaudited) (1):

Basic

$

0.74

$

0.19

Diluted

$

0.57

$

0.15

Pro forma weighted average shares outstanding (unaudited) (1):

Basic

27,753,403

27,820,630

Diluted

36,353,406

36,857,962

(1)

See Note 1 of notes to financial statements for an explanation of the method used to calculate basic and diluted pro forma net income attributable to common
stockholders and the number of shares used in the computation of the per share amounts.

The pro forma as adjusted balance sheet data above gives effect to (1) the automatic conversion of all of our outstanding shares of preferred stock into 27,085,638
shares of common stock upon the completion of this offering pursuant to the provisions of our certificate of incorporation currently in effect, and the resultant reclassification of the preferred stock warrant liability to stockholders equity
(deficit) in connection with such conversion, (2) the sale of 8,350,000 shares of common stock in this offering at an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this
prospectus, after deducting the estimated underwriting discounts and estimated offering expenses payable by us, (3) the issuance of 3,650,955 shares of common stock as a result of the expected net exercise or cash exercise of outstanding warrants in
connection with the completion of this offering, assuming an initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, and (4) the application of the net proceeds from
this offering as described in Use of Proceeds.

(2)

Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of
this prospectus, would increase or decrease, respectively, our pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders equity (deficit) by approximately $7.8 million, assuming that the number
of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and estimated offering expenses payable by us. An increase or decrease of 1.0 million in the
number of shares offered by us would increase or decrease, respectively, our pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders equity (deficit) by approximately $14.0 million, assuming
the initial public offering price of $15.00 per share remains the same and after deducting estimated underwriting discounts and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and
will be adjusted based on the actual initial public offering price and terms of this offering determined at pricing.

An investment in our common stock involves a high degree of risk. You should consider carefully the following risks and other
information contained in this prospectus before you decide whether to buy our common stock. If any of the events contemplated by the following discussion of risks should occur, our business, results of operations, financial condition and growth
prospects could suffer significantly. As a result, the market price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock.

Risks Related to Our Business

Our revenue and financial results depend solely on
sales of Dermagraft for the treatment of diabetic foot ulcers, or DFUs.

All of our revenue is currently derived from
the only product we have commercialized, Dermagraft for the treatment of DFUs, and our ability to generate revenue is dependent on the success of this product. Accordingly, any disruption in our ability to generate revenue from the sale of
Dermagraft or lack of success in its ongoing commercialization will have a material adverse impact on our business, results of operations, financial condition and growth prospects.

Dermagraft is a living cell-based product and its manufacturing process is highly complex, and we may be unable to manufacture the product to meet customer demand.

Dermagraft is a bio-engineered skin substitute that assists in restoring damaged tissue. We manufacture Dermagraft through a multi-step
process involving several iterations of cell expansion and seeding. Manufacturing any living cell product is highly complex and is subject to a number of risks, and failure can occur at any stage in the production process. For example, we have at
times in the past experienced variances in our manufacturing yields and we may experience varying levels of manufacturing yields or other manufacturing issues in the future. In addition, as we seek to continue growing the market for Dermagraft, we
will need to manufacture larger volumes of product than we have historically, which may present unforeseen risks we have not experienced to date. Any period of inability to meet customer demand as a result of manufacturing interruptions could result
in the customers use of an alternative therapy, resulting in lost sales and revenue for us.

We currently rely on a single
manufacturing facility located in La Jolla, California to manufacture Dermagraft. While this facility has an annual capacity in excess of 300,000 units, we expect that in the long term our projected demand will require us to increase our
manufacturing capacity, including by adding a second facility. Due to the complexity involved in manufacturing Dermagraft, the investment to date in establishing our facility and the steps necessary to achieve and maintain compliance with the U.S.
Food and Drug Administrations, or FDAs, regulations governing the good manufacturing practices for medical devices, replicating the processes, personnel and equipment at a new facility will be a time consuming, costly and difficult
endeavor, and we cannot be certain that we will be able to do so in a cost-effective or timely manner, if at all.

We rely on a single
manufacturing facility and any disruption of operations would materially and adversely affect our business.

Our
current reliance on a single manufacturing facility exposes us to additional risks, including natural or man-made disasters such as a fire or an earthquake. The facility and the manufacturing equipment we use to produce Dermagraft would be difficult
and costly to replace and could require substantial lead time to repair or replace if such an event occurs. Although we believe we possess adequate insurance to cover damage to our

property and the disruption of our business from casualties, such insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable
terms or at all. Any disruption, interruption or cessation of our manufacturing operations could have a material adverse affect on our business, results of operations, financial condition and growth prospects.

We rely on third-party suppliers, some of which are currently the only source for the respective components or materials they supply to us.

Although most of the raw materials used in the manufacture of Dermagraft are available from more than one supplier,
we currently obtain the mesh scaffold that we use in the manufacture of Dermagraft from only one supplier, Ethicon, Inc., a subsidiary of Johnson & Johnson. Johnson & Johnson manufactures a 510(k)-cleared wound dressing that may compete
against Dermagraft. While Johnson & Johnson is not our direct competitor, as the parent company of Ethicon it may nevertheless decide for business reasons to no longer permit Ethicon to supply us with the mesh scaffold that we use in the
manufacture of Dermagraft. We currently source the manifolds that we use in producing Dermagraft from only one manufacturing source, Flextronics Medical Sales and Marketing, Ltd., which is located in Mexico. Some of the reagents we use in our
manufacturing process are also obtained from single suppliers. For example, we currently purchase one of the types of serum reagents that we use in the manufacture of Dermagraft solely from HyClone Laboratories. Other than our agreement with HyClone
Laboratories to supply us with this serum, we currently do not have any long-term supply agreements with any suppliers for these reagents and, therefore, such suppliers may not provide us with the reagents that we need in the quantities that we
request.

As part of our manufacturing improvement efforts, we seek to identify and qualify additional suppliers of the
raw materials used to manufacture Dermagraft. While we have identified alternate sources of supply for certain key raw materials, including certain key reagents, there can be no assurance that we will be able to identify and qualify additional
suppliers for all of the raw materials used to manufacture Dermagraft. In addition, we may not be able to enter into long-term agreements with additional suppliers on commercially reasonable terms, or at all. The FDA review process requires
manufacturers to specify in their marketing applications the suppliers of active ingredients and certain component parts and packaging materials. Accordingly, we believe prior FDA approval of new suppliers would be required if we were to change our
current suppliers of the mesh scaffolds, manifolds or one of the types of serum reagents we use in the manufacture of Dermagraft, and may be required if we were to change our other current suppliers. While we believe that we have sufficient
long-term supply agreements in place with third-party suppliers, and while there may also be other suppliers that have equivalent materials that would be available to us, were we to change our current long-term suppliers, FDA approval of any
alternate suppliers could take several months or years to obtain, if at all.

Any delay, interruption or cessation of
production by our third-party suppliers of important components or materials, or any delay in qualifying new components or materials, if necessary, would prevent or delay our ability to manufacture products. In addition, an uncorrected impurity, a
suppliers variation in a raw material, either unknown to us or incompatible with our manufacturing process, or any other problem with our materials or components, would prevent or delay our ability to manufacture products. These delays may
limit our ability to meet demand for our products and delay any ongoing clinical trials, which would have a material adverse impact on our business, results of operations and financial condition.

As a result of our reliance on a sole-source supplier in Mexico, we are also subject to the business, political, operational, financial
and economic risks inherent in international business. For example, economic instability, the imposition of additional trade law provisions or regulations, including embargos, or political or social unrest in Mexico could result in a delay,
interruption or cessation of production of the manifolds that we use in producing Dermagraft, which would prevent or delay our ability to manufacture Dermagraft.

If reimbursement from third-party payors for our products becomes inadequate, physicians and patients may be reluctant to use our products and our sales may decline.

and private health insurance plans, pay for all or a portion of the cost of Dermagraft and the related procedure to apply it. Although we have established coverage of Dermagraft with Medicare,
more than 1,000 private plans and numerous Medicaid programs, we may be unable to sell our products on a profitable basis if these and other third-party payors deny coverage or reduce their current levels of reimbursement. For example, effective as
of January 1, 2011, Centers for Medicare and Medicaid Services, or CMS, assigned two new temporary procedure codes for physicians to bill the application of skin substitutes, including Dermagraft. These new codes are associated with lower
payment amounts in 2011 for physician services only and do not, however, affect payments to the outpatient hospital or ambulatory surgery center settings. In its final Medicare Physician Fee Schedule rule released in November 2010, CMS stated that
it established these new procedure codes for temporary use while stakeholders work through the usual channels to establish permanent codes that reflect the common clinical scenarios in which all skin substitutes are applied. Therefore, we cannot be
certain that current coverage, coding and reimbursement policies of Medicare and other third-party payors will continue, nor can we be certain of the extent to which future changes to coverage, coding and reimbursement policies will affect the use
of Dermagraft.

In addition, to contain costs of new technologies, third-party payors are increasingly scrutinizing new
treatment modalities by requiring extensive evidence of clinical outcomes and cost effectiveness. Payors continue to review their coverage policies carefully for existing and new therapies and some payors can, without notice, deny coverage for
treatments, including the use of Dermagraft. Physicians, hospitals and other healthcare providers may not purchase our products if they do not receive satisfactory reimbursement from these third-party payors for the cost of our products and the
procedures using our products, which would have a material adverse effect on our business, results of operations and financial condition. In addition, the success of Dermagraft for the treatment of venous leg ulcers, or VLUs, if approved by the FDA,
will also depend on establishing reimbursement from third-party payors.

Our current master cell bank from which we propagate units of
Dermagraft has a finite useful life that may be shorter than expected, and although we believe that our master cell bank will continue to provide sufficient cells to meet our projected demand for at least the next five years, we will need to
validate a new master cell bank in order to continue to market and sell Dermagraft in the long term.

All of the units
of Dermagraft we produce are derived from a single master cell bank, which has undergone extensive testing. A single anonymous donor generated our master cell bank, and we have performed extensive testing to ensure the safety of the fibroblast cells
in the master cell bank. We estimate that our master cell bank will continue to provide sufficient cells to meet our projected demand for at least the next five years. However, to the extent the demand for Dermagraft is greater than we expect,
including as a result of our receiving approval to market it for the VLU indication or commercializing TransCyte, or if we should experience any manufacturing or other issues with the cell bank, such time period may be shorter. We may experience
other unanticipated problems with the master cell bank, which could also cause us to reduce or cease operations.

The process
of identifying new donor tissue, testing and verifying its validity in order to create a new master cell bank and validating such cell bank with the FDA is time consuming, costly and prone to the many risks involved with creating living cell
products. Specifically, we may be required to submit a supplement to our existing premarket approval, or PMA, for Dermagraft to the FDA for review and approval for any new cell bank we develop before we may utilize the new cell bank in our
commercial manufacturing process. Although we believe we have the necessary know-how and processes to enable us to create a new master cell bank within the timeframe necessary to meet projected demand and we have begun doing so, we cannot be certain
that we will be able to successfully do so, and any failure or delays in creating a new master cell bank will have a material adverse impact on our business, results of operations, financial condition and growth prospects and could result in our
inability to continue operations.

We may not receive favorable results from our pivotal clinical trial for the use of Dermagraft in the
treatment of VLUs.

Part of our strategy involves the expansion of the use of Dermagraft into new indications,
including the treatment of VLUs. In May 2009, we initiated a pivotal clinical trial designed to assess Dermagrafts safety and efficacy in the promotion of healing VLUs, and we completed enrollment for this trial in November 2010. We expect to
report results from this trial in the fourth quarter of 2011. If the trial is successful, we plan on submitting a supplement for the VLU indication to our existing PMA for Dermagraft in the first quarter of 2012.

We also anticipate using the data generated in this VLU clinical trial to seek authorization for the use of Dermagraft for the VLU
indication in the European Union. In addition to the current 500-patient clinical trial, to meet the European Medicines Agency requirements for longer term follow-up, we are conducting a follow-on study in which approximately 200 patients from the
current VLU clinical trial will be monitored and some of which will continue treatment for up to an additional year. During this additional year, it will be determined whether there are any safety or efficacy issues in patients whose VLUs were
previously healed and whether patients who were not previously healed with conventional therapy alone are healed following an additional year of treatment. We have not commenced clinical trials for any additional indications other than for VLUs.

The clinical and commercial success of Dermagraft in treating VLUs will depend on a number of factors, including the
following:



our ability to demonstrate to the satisfaction of the FDA, the European Medicines Agency or equivalent foreign regulatory agencies, Dermagrafts
efficacy in healing VLUs;



the prevalence and severity of adverse side effects; and



timely receipt of necessary marketing approvals from the FDA, the European Medicines Agency and similar foreign regulatory authorities.

We are aware that two other companies products have recently failed to achieve the clinical trial
results necessary to gain or seek FDA approval for a VLU indication. In 2005, a pivotal clinical trial conducted by Smith & Nephew plc, our predecessor in ownership of the Dermagraft assets, led to the FDAs denying approval of
Dermagraft for the treatment of the indication. While we have designed our trial differently than the trial conducted by Smith & Nephew as well as the other failed trials, most importantly in terms of enrollment criteria, we cannot be
certain that the FDA will accept our data or that we will not experience a similar failure.

Our
enrollment criteria differ from that used in past clinical trials, including the trial conducted by Smith & Nephew, in that our criteria excludes individuals with ulcers older than two years and ulcers larger than 15 cm2, as well as other exclusion criteria. Individuals with older, larger
ulcers are unlikely to obtain results with treatment because of the duration and size of their wound and are not indicative of the majority of our addressable patient population. Notwithstanding our more favorable enrollment criteria, the data we
derive from our VLU clinical trial may be insufficient to support regulatory approval of Dermagraft for the treatment of VLUs. We cannot be certain that the FDA or the European Medicines Agency will accept the data collected from our clinical trial
or related follow-on study or view our data derived from the clinical trial or related follow-on study as favorably as we do. If the FDA or the European Medicines Agency determines that our pivotal clinical trial results or results from the related
follow-on study are not statistically significant and do not demonstrate a clinically meaningful benefit and an acceptable safety profile, or if the FDA or the European Medicines Agency requires us to revise our clinical trial design or conduct
additional clinical trials of Dermagraft in order to gain approval for the treatment of VLUs, we would incur significant additional development costs, commercialization of Dermagraft for the treatment of VLUs would be prevented or delayed and our
business may be adversely affected.

Many of the above factors are beyond our control. Accordingly, we cannot be certain that we
will ever be able to generate revenue through the sale of Dermagraft for the treatment of VLUs. If we are not successful in receiving marketing approval for and commercializing Dermagraft for the treatment of VLUs, or are significantly delayed in
doing so, our business and our growth prospects may be adversely affected.

If we are unable to successfully complete the non-clinical
studies or clinical trials necessary to support our PMA applications or PMA supplements, our ability to obtain new approvals will be limited.

Before submitting a PMA application or PMA supplement, including for Dermagraft for the treatment of VLUs, we must successfully complete non-clinical studies and clinical trials to demonstrate that the
product is safe and effective for each intended use. Product development, including non-clinical studies and clinical trials, is a long, expensive and uncertain process and is subject to delays and failure at any stage. Furthermore, the data
obtained from any trial may be inadequate to support approval of a PMA application or PMA supplement. The commencement or completion of any of our clinical trials may be delayed or halted, or the data we obtain may be inadequate to support approval
of a PMA application or PMA supplement, for numerous reasons, including, but not limited to, the following:



the FDA or other regulatory authorities do not approve a clinical trial protocol or a clinical trial, or place a clinical trial on hold;



the FDA concludes that our trial design is inadequate to demonstrate safety and efficacy;



patients do not enroll in clinical trials at the rate we expect;



patients do not comply with trial protocols;



patient follow-up is not at the rate we expect;



patients experience adverse side effects;



patient death occurs during a clinical trial, even if the death may not be related to our product candidates;

third-party clinical investigators decline to participate in a trial or do not perform a trial on our anticipated schedule or consistent with
the clinical trial protocol and regulatory requirements, including good clinical practice;



contract research organizations, or CROs, involved in the management or monitoring of a clinical trial do not perform as expected;



third-party organizations do not perform data collection and analysis in a timely or accurate manner;



regulatory inspections of our clinical trials or of manufacturing facilities that result, among other things, in our being required to undertake
corrective action or suspend or terminate our clinical trials;



changes in governmental regulations or administrative actions; or



the interim or final results of a clinical trial are inconclusive or unfavorable as to safety or efficacy.

The results of non-clinical studies do not necessarily predict future clinical trial
results, and predecessor clinical trial results may not be repeated in subsequent clinical trials. Additionally, the FDA may disagree with our interpretation of the data from our non-clinical studies and clinical trials and may require us to pursue
additional non-clinical studies or clinical trials, or not approve our PMA application or PMA supplement, which could further delay the approval of our products. If we are unable to demonstrate the safety and efficacy of our products through our
clinical trials, we will be unable to obtain regulatory approval to market our products.

Even if Dermagraft receives regulatory
approvals for the treatment of VLUs, we may not be able to successfully launch and market the product for this indication.

We may not market Dermagraft for the treatment of VLUs until we have received the requisite regulatory approvals for this indication. The commercial success of Dermagraft for the treatment of VLUs, if
approved by applicable regulatory authorities, will depend on a number of factors, including the following:



the availability, relative cost and relative efficacy of alternative and competing treatments;



acceptance by physicians and patients of the product as a safe and effective treatment; and



our ability to obtain sufficient third-party payor coverage or reimbursement for Dermagraft for the treatment of VLUs.

Regulatory authorities may approve Dermagraft for a more narrow indication with respect to the treatment of VLUs or restrict the claims
we may make regarding Dermagraft for treating VLUs. Even if we receive regulatory approval to market Dermagraft to treat VLUs, any problems associated with the successful marketing of Dermagraft for this indication could harm our sales of Dermagraft
for the treatment of DFUs. If we are not successful in launching and marketing Dermagraft for the treatment of VLUs, or are significantly delayed in doing so, our future prospects may be diminished.

Our patents and other intellectual property rights may not adequately protect our products.

Our ability to compete effectively will depend, in part, on our ability to maintain the proprietary nature of our technology and
manufacturing processes. We rely on manufacturing and other know-how, patents, trade secrets, trademarks, license agreements and contractual provisions to establish our intellectual property rights and protect our products. These legal means,
however, afford only limited protection and may not adequately protect our rights. The patents we own may not be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage, and competitors may be able to
design around our patents or develop products that provide outcomes that are similar to ours.

We rely primarily on trade
secrets, know-how and other unpatented technology, which are difficult to protect. Although we seek such protection in part by entering into confidentiality agreements with our vendors, employees, consultants and others who may have access to
proprietary information, we cannot be certain that these agreements will not be breached, adequate remedies for any breach would be available or our trade secrets, know-how and other unpatented proprietary technology will not otherwise become known
to or be independently developed by our competitors. If we are unsuccessful in protecting our intellectual property rights, sales of our products may suffer and our ability to generate revenue could be severely impacted.

In addition to trade secrets, know-how and other unpatented technology, we also rely on patents to protect our products. We acquired most
of our key patents related to Dermagraft from Smith & Nephew, which acquired those patents from Advanced Tissue Sciences, Inc. Thus, most of our patents were not written by us or counsel engaged by us, and we did not have control over the
drafting and prosecution of these patents. Therefore, we cannot be certain that our key patents were properly prosecuted in their respective jurisdictions or that the patents provide proper protection, or any protection, for our products and
processes.

Prior to our acquisition of the Dermagraft patents from Smith & Nephew, Advanced Tissue
Sciences and Smith & Nephew licensed these patents to three third parties for use in indications that do not compete with Dermagraft. Specifically, the licenses granted the use of the patents in (1) liver testing applications,
(2) cardiovascular purposes and (3) cosmetic products. As part of our acquisition of the Dermagraft assets from Smith & Nephew, we assumed these agreements and entered into a license agreement with Smith & Nephew granting it rights
to the patents, including the right to sublicense the patents to third parties, for product categories related to the repair, regeneration or relief of diseases or medical conditions of tissue or organs comprising the musculoskeletal system that do
not compete with Dermagraft. One or more of these third-party licensees may assert one or more of the patents against competitors of their products or competitors may assert their intellectual property rights against these third parties or
Smith & Nephew. Any such litigation would be outside of our control and could result in a court decision that limits the claim scope of one or more of the patents we acquired from Smith & Nephew or a decision that invalidates
claims in one or more of the patents. Any such decision could adversely impact our ability to protect our products and may enable competitors to design around any remaining patents.

Three of the patents that we acquired from Smith & Nephew have expired. The remaining patents that we acquired from
Smith & Nephew are expected to expire on various dates between 2012 and 2021, including two of our key patents covering three-dimensional cell, skin and tissue culturing, which we use in the manufacture of Dermagraft, that are expected to
expire in 2012. In addition, our key patent covering production of a temporary living skin replacement, which we use in the manufacture of TransCyte, is expected to expire in 2012. Outside of these key patents, we also have eight other supporting
patents that we acquired from Smith & Nephew related to the manufacturing and shipping of living cell-based products, such as Dermagraft and TransCyte. Of the remaining supporting patents, we expect that two covering a three-dimensional cell and
tissue culture system will expire in 2013, two generally covering naturally secreted extracellular matrix will expire in 2015, one covering growth and packaging of three-dimensional cell and tissue culture systems will expire in 2015 and one related
patent will expire in 2016, one covering cells or tissues with increased protein factors will expire in 2018 and one covering shipping and storing frozen products will expire in 2021. In addition, a third party may bring a proceeding before the
United States Patent and Trademark Office, or USPTO, or equivalent foreign agency attempting to significantly narrow the claims in our issued patents. We could incur substantial costs in proceedings before the USPTO or equivalent foreign agency and
the proceedings can be time-consuming, which may cause significant diversion of effort by our technical and management personnel. These proceedings could result in adverse decisions as to the priority of our inventions and the narrowing or
invalidation of claims in issued patents. In addition, the laws of some of the countries in which our products are or may be sold may not protect our intellectual property to the same extent as U.S. laws or at all. We also may be unable to protect
our rights in trade secrets and unpatented proprietary technology in these countries.

Legal proceedings to assert our intellectual
property rights could require us to spend money and could impair our operations.

In the event that a competitor
infringes upon our patent or other intellectual property rights, enforcing these rights may be costly, difficult and time-consuming and the competitor may challenge and invalidate our patents. Even if successful, litigation to enforce our
intellectual property rights or to defend our patents against challenge could be expensive and time-consuming and could divert our managements attention from our primary business. We may not have sufficient resources to enforce our
intellectual property rights or to defend our patents or other intellectual property rights against a challenge. Although Smith & Nephew is required to cooperate in any action brought by us against a third-party infringer, their failure to
do so could adversely impact our ability to enforce the out-licensed patents. If we are unsuccessful in enforcing and protecting our intellectual property rights and protecting our products, it could harm our business, results of operations and
financial condition.

We may be unable to compete successfully against our existing or potential competitors.

The medical device and biotechnology industries are characterized by rapidly advancing technologies, intense competition and a strong
emphasis on proprietary products. Competition in the regenerative medicine

industry is particularly intense, due largely to the fact that regenerative medicine products currently compete with both traditional and advanced products, as well as bio-engineered products.
Our success depends, in part, on our ability to maintain a competitive position in the development of technologies and products for use by our customers. Our direct competitors with regenerative medicine products are Organogenesis, Inc., which
markets Apligraf, and Systagenix Wound Care Limited, which markets Regranex. Additionally, there are alternative DFU treatments, including advanced mechanical treatments marketed by Kinetic Concepts, Inc. and Smith & Nephew, and traditional
510(k)-cleared wound dressings marketed by, among others, ConvaTec Inc., Johnson & Johnson, Healthpoint, Ltd., Systagenix Wound Care Limited, Smith & Nephew, Mölnlycke Health Care and The Coloplast Group.

Many of the companies developing or marketing competing or alternative products have competitive advantages when compared to us,
including:



greater financial and human resources for product development, including clinical trials and sales and marketing;



greater name recognition;



broader and more established relationships with physicians, hospitals and third-party payors;



broader product lines and the ability to offer rebates or bundle products to offer greater discounts or incentives;



broader and more established sales and marketing and distribution networks; and



more experience in conducting research and development, manufacturing, preparing regulatory submissions and obtaining regulatory clearance or approval
for products.

In addition to already marketed products, we also face competition from product candidates
that are or could be under development and that target the same indications as our products. Such product candidates may be developed by the above-mentioned entities and others, including pharmaceutical companies, biotechnology companies, academic
institutions, government agencies and private and public research institutions. We also compete against smaller, entrepreneurial companies with niche product lines. Our competitors may develop and patent processes or products earlier than we can,
obtain regulatory clearance or approvals for competing products more rapidly than we can and develop more effective or less expensive products or technologies that render our technology or products obsolete or non-competitive. We also compete with
other organizations in recruiting and retaining qualified scientific and management personnel, as well as in acquiring technologies and technology licenses complementary to our products or advantageous to our business. If our competitors are more
successful than us in these matters, we may be unable to compete successfully against our existing or future competitors.

We rely on
third parties to perform many necessary services for the commercialization of Dermagraft, including services related to the distribution, storage and transportation of our products.

We rely upon third parties for certain distribution services. In accordance with product specifications, these third parties ship our
product in specially validated shipping containers at frozen temperatures. If any of the third parties that we rely upon in our distribution process fail to comply with applicable laws and regulations, fail to meet expected deadlines, or otherwise
do not carry out their contractual duties to us, or encounter physical damage or natural disaster at their facilities, our ability to deliver product to meet commercial demand may be significantly impaired.

We rely on third parties to conduct our clinical trials and to assist us with non-clinical development and they may not perform as contractually
required or expected.

We rely on third parties, such as CROs, medical institutions, clinical investigators and
contract laboratories to conduct our clinical trials and non-clinical studies. A number of such third parties are involved in

our VLU clinical trial. We and our CROs are required to comply with all applicable regulations governing clinical research, including good clinical practice, or GCP. The FDA enforces these
regulations through periodic inspections of trial sponsors, principal investigators, CROs and trial sites. If we or our CROs fail to comply with applicable FDA regulations, the data generated in our clinical trials may be deemed unreliable and the
FDA may require us to perform additional clinical trials before approving our marketing applications. We cannot be certain that, upon inspection, the FDA and similar foreign regulatory authorities will determine that any of our clinical trials
comply or complied with clinical trial regulations, including GCP. In addition, our clinical trials must be conducted with product produced under applicable current good manufacturing practice regulations, and the FDA may also require a large number
of test subjects. Our failure to comply with the clinical trial regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if these third parties need to be replaced, or if the quality or
accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our non-clinical development activities or clinical trials may be extended, delayed, suspended or
terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, our products on a timely basis, if at all, and our business, results of operations, financial condition and growth prospects may be adversely
affected. Furthermore, our third-party clinical trial investigators may be delayed in conducting our clinical trials for reasons outside of their control.

We may be unsuccessful in commercializing our products outside the United States.

To date, we have focused our commercialization efforts in the United States. We are seeking to expand our sales beyond the United States and will need to comply with applicable foreign regulatory
requirements, including obtaining the requisite approvals, to do so. Additionally, we would either need to enter into distribution agreements with third parties or develop a direct sales force in these foreign markets. If we do not obtain adequate
levels of reimbursement from third-party payors outside of the United States, we may be unable to develop and grow Dermagraft sales internationally. Outside of the United States, reimbursement systems vary significantly by country. Many foreign
markets have government-managed healthcare systems that govern reimbursement for medical devices and procedures. Additionally, some foreign reimbursement systems provide for limited payments in a given period and therefore result in extended payment
periods. If we are unable to successfully commercialize our products internationally, our growth prospects may be materially harmed.

We
may be unable to commercialize TransCyte in a cost-effective manner.

Currently, we have one other product, TransCyte,
which has received a PMA from the FDA and is indicated for the treatment of mid-dermal to indeterminate depth, partial-thickness, thermal burn wounds, and is also indicated as a temporary covering for surgically excised full-thickness, third degree
and deep partial-thickness, second degree, burns in patients who require such a covering prior to autograft placement, which we collectively refer to as severe burns. To date, we have focused our resources on the commercialization of Dermagraft for
the treatment of DFUs and do not currently manufacture or market TransCyte in any territory. We are evaluating opportunities to commercialize TransCyte through arrangements with state, federal or international government agencies. However, in order
to manufacture large quantities of TransCyte annually, we will need to obtain additional manufacturing space in a new facility. If we are not able to obtain a new facility, manufacturing TransCyte would reduce our current manufacturing capacity for
Dermagraft. Additionally, U.S. federal and state, as well as many international government agencies, may not have the budgetary resources to enter into a long-term arrangement sufficient to justify our expenditure to commercialize TransCyte. We may
also be unable to negotiate and agree upon a long-term agreement on terms that are acceptable to both sides. In addition, TransCyte would be manufactured using cells derived from our existing master cell bank, which would shorten the cell
banks useful life. As such, we may not commercialize TransCyte in the near-term or at all, and therefore may never derive revenue from its sale.

As part of our growth strategy, we may, among other things, selectively in-license or acquire complementary products and technologies.
The success of this strategy depends partly upon our ability to identify and select promising products, negotiate licensing or acquisition agreements with their current owners and finance these arrangements. The process of proposing, negotiating and
implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing, sales and other resources, may compete with us for the license
or acquisition of product candidates and approved products. We may not be able to acquire the rights to additional products or product candidates, on terms that we find acceptable, or at all.

Our efforts to acquire and integrate other companies or product lines could adversely affect our operations and financial results.

We may pursue acquisitions of other companies or product lines. A successful acquisition depends on our ability to identify, negotiate,
complete and integrate such acquisition and to obtain any necessary financing. With respect to future acquisitions, we may experience:



difficulties in integrating any acquired companies, personnel and products into our existing business;



exposure to unknown liabilities;



delays in realizing the benefits of the acquired company or products;



diversion of our managements time and attention as well as our capital resources from other business concerns;



challenges due to limited or no direct prior experience in new markets or countries we may enter;



impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership;



higher costs of integration than we anticipated; or



difficulties in retaining key employees of the acquired business.

In addition, any future acquisitions could materially impair our operating results by causing us to make significant expenditures or
incur debt in an effort to fund such acquisitions.

If we cannot retain our key personnel, we will not be able to manage and operate
successfully, and we may not be able to meet our strategic objectives.

Our success depends, in part, upon key
managerial, manufacturing, scientific, sales and technical personnel, as well as our ability to continue to attract and retain additional highly qualified personnel. We compete for such personnel with other companies, academic institutions,
governmental entities and other organizations, some of which have greater financial resources than we do to recruit and retain personnel. We cannot be certain that we will be successful in retaining our current personnel or in hiring or retaining
qualified personnel in the future. We do not have key man insurance policies on the lives of any of our employees that would compensate us for the loss of their services. Loss of key personnel or the inability to hire or retain qualified
personnel in the future could have a material adverse effect on our ability to operate successfully. Further, any inability on our part to enforce non-compete arrangements related to key personnel who have left our company or may leave our company
in the future could have a material adverse effect on our business.

Consolidation in the healthcare industry could lead to demands for price concessions or to the
exclusion of some suppliers from certain of our markets, which could have an adverse effect on our business, results of operations and financial condition.

Because healthcare costs have risen significantly over the past decade, numerous initiatives and reforms initiated by legislators, regulators and third-party payors to curb these costs have resulted in a
consolidation trend in the healthcare industry to create new companies with greater market power. As the healthcare industry consolidates, competition to provide products and services to industry participants has become and will continue to become
more intense. This in turn has resulted and will likely continue to result in greater pricing pressures and the exclusion of certain suppliers from important market segments as group purchasing organizations, independent delivery networks and large
single accounts continue to use their market power to consolidate purchasing decisions for some of our customers. We expect that market demand, government regulation, third-party reimbursement policies and societal pressures will continue to change
the worldwide healthcare industry, resulting in further business consolidations and alliances among our customers, which may reduce competition, exert further downward pressure on the prices of our products and could adversely impact our business,
results of operations and financial condition.

Discovery of previously unknown problems with a product, manufacturer or facility, could
result in product liability exposure and significantly reduce our resources.

The commercial and clinical use of
Dermagraft exposes us to the risk of product liability claims. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA, such as the case with Dermagraft for the
treatment of DFUs, or an applicable foreign regulatory authority. Any side effects, manufacturing defects, misuse or abuse associated with Dermagraft could result in injury to a patient. In addition, a liability claim may be brought against us even
if our product merely appears to have caused an injury. Product liability claims may be brought against us by consumers, healthcare providers, medical device companies or others selling or otherwise coming into contact with our product, among
others. If we cannot successfully defend ourselves against product liability claims, we will incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in:

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the inability to commercialize our products;

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decreased demand for our products;

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impairment of our business reputation;

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product recall or withdrawal from the market;

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withdrawal of clinical trial participants;

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costs of related litigation;

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distraction of managements attention from our primary business;

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substantial monetary awards to patients or other claimants; or

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loss of revenue.

We carry product liability insurance coverage for commercial product sales and clinical trials that we believe is consistent with industry norms. Our insurance coverage may not be sufficient to cover all
of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to

maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us against losses due to product liability. If we determine that it is prudent to
increase our product liability coverage, we may be unable to obtain this increased product liability insurance on commercially reasonable terms or at all. Large judgments have been awarded in class action or individual lawsuits based on device or
drug products that had unanticipated side effects, including side effects that are less severe than those of our products. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if
judgments exceed our insurance coverage, could decrease our cash and have a material adverse affect our business, results of operations, financial condition and growth prospects.

Our business and operations would suffer in the event of system failures.

Despite the implementation of security measures, our internal computer systems and those of our current and any future suppliers, contractors and consultants may be vulnerable to damage from computer
viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and
cause interruptions in our operations, it could result in a material disruption of our commercialization activities and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in
delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties to supply components for and manufacture our products, warehouse and distribute such products and
conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business, results of operations and financial condition. To the extent that any disruption or security breach were to
result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our products and product candidates
could be delayed.

Our amended and restated loan and security agreement, or loan agreement, is collateralized by all of our presently
existing and subsequently acquired personal property assets, and subjects us to certain affirmative and negative covenants, including limitations on our ability to transfer or dispose of assets, merge with or acquire other companies, make
investments, pay dividends, incur additional indebtedness and liens, conduct transactions with affiliates and terminate or replace our Chief Executive Officer, Kevin Rakin. We are also subject to certain covenants that require us to maintain certain
financial ratios and are required under certain conditions to make mandatory prepayments of outstanding principal. As a result of these covenants and ratios, we have certain limitations on the manner in which we can conduct our business, and we may
be restricted from engaging in favorable business activities or financing future operations or capital needs until our current debt obligations are paid in full or we obtain the consent of our lender, which we may not be able to obtain. We cannot be
certain that we will be able to generate sufficient cash flow or revenue to meet the financial covenants or pay the principal and interest on our debt. In addition, upon the occurrence of an event of default, our lender, among other things, can
declare all indebtedness due and payable immediately, which would adversely impact our liquidity and reduce the availability of our cash flows to fund working capital needs, capital expenditures and other general corporate purposes. An event of
default includes our failure to pay any amount due and payable under the loan agreement, the occurrence of a material adverse change in our business as defined in the loan agreement, our breach of any covenant in the loan agreement, subject to a
grace period in some cases, our default on any debt payment to a third party in an amount exceeding $50,000 or any voluntary or involuntary insolvency proceeding. Additionally, our lender could exercise its lien on substantially all of our assets
and we cannot be certain that future working capital, borrowings or equity financing will be available to repay or refinance any such debt.

Our results of operations and liquidity needs could be materially and adversely affected by market
fluctuations and economic downturn.

Our results of operations and liquidity could be materially and adversely
affected by economic conditions generally, both in the United States and elsewhere around the world. Domestic and international equity and debt markets have experienced and may continue to experience heightened volatility and turmoil based on
domestic and international economic conditions and concerns. Although some of these economic conditions and concerns have been alleviated, in the event they continue or come to fruition again and the markets continue to remain volatile, our results
of operations and liquidity could be adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price may decline. In addition, we maintain significant amounts of cash and
cash equivalents at one or more financial institutions, all of which may not be federally insured. If economic instability were to occur, we cannot be certain that we will not experience losses on these investments.

We may need substantial additional funding beyond the proceeds of this offering and may be unable to raise capital when needed, which would force
us to delay, reduce, eliminate or abandon our commercialization efforts or product development programs.

We cannot be
certain that our anticipated cash flow from operations will be sufficient to meet all of our cash requirements. We intend to continue to make investments to support our business growth and may require additional funds to:

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expand the commercialization of our products;

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fund our operations and clinical trials;

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expand our manufacturing capabilities;

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continue our research and development;

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defend, in litigation or otherwise, any claims that we infringe third-party patents or other intellectual property rights;

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commercialize our new products, if any such products receive regulatory clearance or approval for commercial sale; and

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acquire companies and in-license products or intellectual property.

We believe that the net proceeds from this offering, together with our existing cash and cash equivalent balances and cash receipts
generated from sales of our products, will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, we may need additional funding sooner than expected and our business and future funding requirements can
change unpredictably due to a variety of factors, which could affect our funding needs or cash flows from operations, including:

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market acceptance of our products;

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the scope, rate of progress and cost of our clinical trials;

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the cost of expanding our manufacturing capabilities;

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the cost of our research and development activities, including identifying, testing and verifying a new master cell bank;

the cost of defending, in litigation or otherwise, any claims that we infringe third-party patent or other intellectual property rights;

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the cost and timing of additional regulatory clearances or approvals, including approval of Dermagraft for the treatment of VLUs;

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the cost of ongoing regulatory compliance, including product recalls and withdrawals;

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the cost and timing of expanding our sales, marketing and distribution capabilities;

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the cost of filing and prosecuting patent applications and defending and enforcing our patent and other intellectual property rights;

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the effect of competing technological and market developments; and

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the extent to which we acquire or invest in businesses, products and technologies, although we currently have no commitments or agreements relating to
any of these types of transactions.

We may be unable to raise additional funds in a timely manner or on
terms that are acceptable to us. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional
debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we do not have, or are not able to obtain, sufficient funds, we may have to delay development or commercialization of
our products or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize. We also may have to reduce marketing, customer support or other resources devoted to our products or cease
operations.

Risks Related to Regulatory Environment

The sale of our products is subject to regulatory approvals and our business is subject to extensive regulatory requirements. If we fail to maintain regulatory approvals, or are unable to obtain, or
experience significant delays in obtaining, FDA approvals or clearances for our future products or product enhancements, our ability to commercially distribute and market these products could suffer.

Our medical device products and operations are subject to extensive regulation by the FDA and various other federal and state
governmental authorities. Government regulation of medical devices is meant to assure their safety and effectiveness, and includes regulation of, among other things:

field corrections and product recalls and removal; post-market surveillance, including reporting of deaths or serious injuries, and malfunctions that,
if they were to recur, would be likely to cause or contribute a death or serious injury; and

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product import and export.

Before a new medical device, or a new use of, or claim for, an existing product can be marketed in the United States, it must first receive either a premarket clearance under Section 510(k) of the
Federal Food, Drug, and Cosmetic Act or a PMA from the FDA, unless an exemption applies. Our products generally require a PMA before they can be marketed. The PMA pathway requires an applicant to demonstrate the safety and effectiveness of the
device for its intended use or uses based, in part, on extensive data including, but not limited to, technical, preclinical, clinical trial, manufacturing and labeling data. One or more clinical trial is almost always required to support a PMA and
is sometimes required to support a 510(k) submission. We are currently conducting our VLU clinical trial pursuant to an Investigational Device Exemption, or IDE, application, which the FDA conditionally approved in April 2009. The FDA may permit a
clinical trial to proceed under conditional approval of the IDE, subject to meeting certain conditions or modifications, if it determines that there are deficiencies or other concerns with an IDE that need to be addressed. The FDA has conditionally
approved our IDE based on a requirement that we modify certain analyses of the study data that we intend to conduct. For example, as a condition of approval of our IDE, the FDA has requested that we include interaction tests as well as
methods for comparing baseline criteria for our pooling analyses. Additionally, the FDA has requested that we conduct any exploratory secondary analyses only after our primary endpoint analyses are determined to be statistically significant. We
intend to meet and follow these conditions of approval of our IDE. However, the FDAs acceptance of an IDE application does not give assurance that the FDA will approve the IDE and, if it is approved, the FDA may determine that the data derived
from the trials warrant the continuation of clinical trials or do not support the safety and effectiveness of the device.

The
PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices. The PMA process can be expensive and lengthy. The PMA pathway is much more costly and uncertain
than the 510(k) premarket clearance process and it generally takes from one to three years, or even longer, from the time the application is filed with the FDA until an approval is obtained. The process of obtaining regulatory approvals to market a
medical device can thus be costly and time-consuming, and we may not be able to obtain these approvals on a timely basis, if at all.

In addition, from time to time, legislation is drafted and introduced in the United States that could significantly change the statutory provisions governing any regulatory approval or clearance that we
receive in the United States. FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. For example, in January 2011, the FDA announced 25 specific action items it
intends to take with respect to the 510(k) process. Some of these actions may result in additional or new regulatory requirements. Although these modifications are directed at the 510(k) clearance process instead of the PMA process to which our
current products are primarily subject, we anticipate that at least some of the FDAs revisions or clarifications of its policies and guidances may also affect its PMA review process. It is uncertain, if, and to what extent, any of these plans
or actions would affect the regulation of our products or our ability to obtain and maintain regulatory approvals or clearances.

In addition, while Dermagraft was approved by the FDA as a medical device pursuant to a PMA for the DFU indication and our VLU clinical trial is currently ongoing under an IDE, it is possible that further
developments in the FDAs approval process or policies regarding tissue-engineered products may result in the agency determining to review the VLU indication or other potential indications as a biological product. Such a determination would
require us to submit a Biologics License Application, or BLA, rather than a PMA supplement, and may subject us to additional data requirements and conditions of approval.

For example, while the BLA and PMA approval processes both require the submission of
clinical data demonstrating the safety and efficacy of the product candidate, a BLA is typically supported by data generated in three phases of clinical testing. As a result, we may need to generate more clinical data in support of a BLA than we
would need to generate in support of a PMA supplement. In addition, like a PMA, a BLA must contain extensive manufacturing information and the applicant must pass a pre-approval inspection or review of the manufacturing facility or facilities at
which, or operations by which, the biologic is produced to assess compliance with applicable current good manufacturing practice requirements. However, if Dermagraft for the treatment of VLUs were to be deemed a biologic, rather than a medical
device, by the FDA, the scope and detail of the manufacturing information we would need to submit in support of a BLA could be more extensive.

The FDA can delay, limit or deny approval of a device for many reasons, including but not limited to:

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our inability to demonstrate to the FDAs satisfaction that our products are safe and effective for their intended use or uses;

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insufficient data from our non-clinical studies and clinical trials to support approval, where required;

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the failure of our manufacturing process or facilities we use to meet applicable regulatory requirements; and

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changes in FDA approval policies or the adoption of new regulations that may require additional data or conditions of approval.

Any delay in, or failure to receive or maintain, approval or clearance for Dermagraft for the treatment of
VLUs could prevent us from generating revenue from this new indication. Even after our products receive initial regulatory approval or clearance for specific therapeutic applications, we will still be subject to post-market regulatory requirements,
which include medical device ongoing reporting obligations and compliance with quality system regulations related to the design and manufacturing of our device, which will be subject to continuing regulatory review, including FDA inspections. This
ongoing review may result in the withdrawal of our product from the market, the interruption of our manufacturing operations and the imposition of labeling or marketing limitations related to specific applications of our product.

Healthcare policy changes, including the recently enacted legislation to reform the U.S. healthcare system, may have a material adverse effect on
us.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Affordability Reconciliation Act, which substantially changes the way healthcare is financed by both governmental and private insurers, encourages improvements in the quality of healthcare items and services, and
significantly impacts the biotechnology and medical device industries. This Act includes, among other things, the following measures:

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a 2.3% excise tax on any entity that manufactures or imports medical devices offered for sale in the United States, with limited exceptions, beginning
in 2013;

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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities and conduct comparative clinical effectiveness research;

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new reporting and disclosure requirements on device manufacturers for any transfer of value made or distributed to physicians and teaching
hospitals, as well as reporting of certain physician ownership interests, with the first of such reports due March 31, 2013 for calendar year 2012;

payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the
coordination, quality and efficiency of certain healthcare services through bundled payment models, beginning on or before January 1, 2013;

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an independent payment advisory board that will submit recommendations to reduce Medicare spending if projected Medicare spending exceeds a specified
growth rate; and

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a new abbreviated pathway for the licensure of biological products that are demonstrated to be biosimilar or interchangeable with a licensed biological
product.

These provisions could meaningfully change the way healthcare is delivered and financed, and could
have a material adverse impact on numerous aspects of our business.

In the future there may continue to be additional
proposals relating to the reform of the U.S. healthcare system. Certain of these proposals could limit the prices we are able to charge for our products, or the amounts of reimbursement available for our products, and could limit the acceptance and
availability of our products. The adoption of some or all of these proposals could have a material adverse effect on our business, results of operations and financial condition.

Additionally, initiatives sponsored by government agencies, legislative bodies and the private sector to limit the growth of healthcare
costs, including price regulation and competitive pricing, are ongoing in markets where we do business. We could experience an adverse impact on our operating results due to increased pricing pressure in the United States and in other markets.
Governments, hospitals and other third-party payors could reduce the amount of approved reimbursement for our products or deny coverage altogether. Reductions in reimbursement levels or coverage or other cost-containment measures could unfavorably
affect our future operating results.

The use, misuse or off-label use of our products may harm our reputation or the image of our
products in the marketplace, or result in injuries that lead to product liability suits, which could be costly to our business or result in FDA sanctions if we are deemed to have engaged in off-label promotion.

Dermagraft has been approved by the FDA for the treatment of DFUs under specific circumstances. Our promotional materials and training
methods must comply with FDA and other applicable laws and regulations, including the prohibition on the promotion of a medical device for an indication that has not been approved or cleared by the FDA, or an off-label use. The FDA does not restrict
or regulate a physicians use of a medical device within the practice of medicine, and we cannot prevent a physician from using our product for an off-label use. However, the Federal Food, Drug, and Cosmetic Act and the FDAs regulations
restrict the kind of communications that may be made about our products and if the FDA determines that our promotional or training materials constitute the unlawful promotion of an off-label use, it could request that we modify our training or
promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, civil money penalties, criminal fines and penalties, and exclusion from participation in federal health
programs. Other federal, state or foreign governmental authorities might also take action if they consider our promotion or training materials to constitute promotion of an uncleared or unapproved use, which could result in significant fines or
penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged and the use of our products in the marketplace could be impaired.

In addition, there may be increased risk of injury if physicians or others attempt to use our product off-label. Furthermore, the use of
our product for indications other than those for which our product has been approved or cleared by the FDA may not effectively treat such conditions, which could harm our reputation in the marketplace among physicians and patients. Physicians may
also misuse our product or use improper

techniques if they are not adequately trained in the particular use, potentially leading to injury and an increased risk of product liability. Product liability claims are expensive to defend and
could divert our managements attention from our primary business and result in substantial damage awards against us. Any of these events could harm our business, results of operations and financial condition.

If our marketed medical devices are defective or otherwise pose safety risks, the FDA could require their recall, or we may initiate a voluntary
recall of our products.

The FDA may require the recall of a marketed device in the event that it determines that due
to material deficiencies or defects that the use of the product poses an unacceptable risk to health. In addition, manufacturers may, on their own initiative, recall a product to remove or correct a deficiency or to remedy a violation of the Federal
Food, Drug, and Cosmetic Act that may pose a risk to health. A government-mandated or a voluntary recall could occur as a result of an unacceptable risk to health, component failures, manufacturing errors, design or labeling defects or other
deficiencies and issues. Recalls, corrections or removals of any of our products would divert managerial and financial resources and have an adverse effect on our business, results of operations and financial condition. A recall could harm our
reputation with customers and negatively affect our sales. We may initiate removals involving some of our products in the future that we determine do not require notification of the FDA. If the FDA were to disagree with our determinations, it could
request that we report those actions as recalls, and take regulatory or enforcement action relating to the product.

If our products
cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.

Under the FDA medical device reporting regulations, we are required to report to the FDA any incident in which a device we market may
have caused or contributed to a death or serious injury, or in which our product malfunctioned and, if the malfunction were to recur, it would be likely to cause or contribute to death or serious injury. If we fail to report these events to the FDA
within the required timeframes, or at all, the FDA could take regulatory or enforcement action against us. Any adverse event involving our products could result in future voluntary corrective actions, such as recalls or customer notifications, or
agency action, such as inspection, mandatory recall or other enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract
management from operating our business, and may harm our reputation, business, results of operations and financial condition.

Our
manufacturing operations require us to comply with the FDAs and other governmental authorities laws and regulations regarding the manufacture and production of medical devices, which is costly and could subject us to enforcement action.

We are required to comply with the FDAs Quality System Regulation, which covers the methods used in, and the
facilities and controls used for, the design, manufacture, quality assurance, labeling, packaging, sterilization, storage, shipping, installation and servicing of our products. The FDA enforces the Quality System Regulation through periodic
announced and unannounced inspections of manufacturing facilities. The failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory authorities, or the failure to timely and
adequately respond to any adverse inspectional observations, warning letter or product safety issues, could result in, among other things, any of the following enforcement actions:

refusing or delaying our requests for PMA approval or 510(k) clearance of new products, modified products or for new indications;

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withdrawing PMAs that have already been granted;

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refusal to grant export certificates for our products; or

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criminal prosecution.

Any of these actions could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers demands. We may also be required to bear other costs or
take other actions that may have an adverse impact on our future sales and our ability to generate profits. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatory
requirements, which could result in our failure to produce our products on a timely basis and in the required quantities, if at all.

We
are subject to substantial post-market government regulation that could have a material adverse effect on our business.

The production and marketing of our products are subject to extensive regulation and review by the FDA and numerous other governmental
authorities both in the United States and abroad. The FDA and other governmental authorities have broad enforcement powers. The failure by us or one of our suppliers to comply with applicable regulatory requirements could result in, among other
things, the FDA or other governmental authorities:

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imposing fines and penalties on us;

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preventing us from manufacturing or selling our products;

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delaying pending requests for approval or clearance of our products or of new uses or modifications to our existing products;

imposing operating restrictions, including a partial or total shutdown of production on a product, manufacturer or manufacturing process;

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refusing to permit to import or export of our products;

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detaining or seizing our products;

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obtaining injunctions preventing us from manufacturing or distributing our products; and

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commencing criminal prosecutions.

Failure to comply with applicable regulatory requirements could also result in civil actions against us and other unanticipated expenditures. If any of these actions were to occur, it would harm our
reputation and cause our product sales to suffer and may prevent us from generating revenue.

We may be subject to or otherwise affected by federal and state healthcare laws, including fraud and
abuse and health information privacy and security laws, and could face substantial penalties if we are unable to fully comply with such laws.

Although we do not provide healthcare services, submit claims for third-party reimbursement, or receive payments directly from Medicare, Medicaid or other third-party payors for our products, we are
subject to healthcare fraud and abuse regulation and enforcement by federal and state governments, which could significantly impact our business. Healthcare fraud and abuse and health information privacy and security laws potentially applicable to
our operations include:

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the federal Anti-Kickback Law, which constrains our marketing practices and those of our independent sales agencies, educational programs, pricing
policies and relationships with healthcare providers, by prohibiting, among other things, soliciting, receiving, offering or providing remuneration intended to induce the purchase or recommendation of an item or service reimbursable under a federal
healthcare program, such as the Medicare or Medicaid programs;

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federal false claims laws that prohibit, among other things, knowingly presenting, or causing to be presented, claims for payment from Medicare,
Medicaid or other third-party payors that are false or fraudulent;

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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, and its implementing regulations, which created federal criminal
laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and, as amended by the Health Information Technology for Economic and Clinical Health Act, also imposes certain
regulatory and contractual requirements regarding the privacy, security and transmission of individually identifiable health information;

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federal sunshine requirements imposed by the Patient Protection and Affordable Care Act on device manufacturers regarding any
transfer of value made or distributed to physicians and teaching hospitals; and

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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by
any third-party payor, including commercial insurers, and state laws governing the privacy and security of certain health information, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating
compliance efforts.

Some states, such as California, Massachusetts and Vermont, mandate implementation of
corporate compliance programs to ensure compliance with these laws, and impose additional restrictions on our financial relationships with physicians and other healthcare providers.

Another development affecting fraud and abuse risks is the increased use of the whistleblower or qui tam provisions of the False Claims
Act. The False Claims Act imposes liability on any person or entity who, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program. The qui tam provisions of the False
Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In recent years, the number of
suits brought by private individuals has increased dramatically. In addition, various states have enacted false claim laws analogous to the False Claims Act. Many of these state laws apply where a claim is submitted to any third-party payor and not
merely a federal healthcare program.

If our past or present operations are found to be in violation of any of such laws or
any other governmental regulations that may apply to us, we may be subject to penalties, including civil and criminal

penalties, damages, fines, exclusion from federal healthcare programs and the curtailment or restructuring of our operations. Similarly, if the healthcare providers or entities with whom we do
business are found to be non-compliant with applicable laws, they may be subject to sanctions, which could also have an adverse impact on us. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our
ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their
provisions are open to a variety of interpretations. In addition, recent healthcare reform legislation has strengthened these laws.For example, the recently enacted Patient Protection and Affordable Care Act, among other things, amends the
intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Patient Protection and Affordable
Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act. Any action
against us for violation of these laws, even if we successfully defend against them, could cause us to incur significant legal expenses and divert our managements attention from the operation of our business. Moreover, we expect there will
continue to be federal and state laws and regulations, proposed and implemented, that could impact our operations and business. The extent to which future legislation or regulations, if any, relating to healthcare fraud abuse laws or
enforcement, may be enacted or what effect such legislation or regulation would have on our business remains uncertain.

Failure to
obtain and maintain regulatory authorization in foreign jurisdictions will prevent us from marketing our products abroad.

We intend to market our products internationally. In particular, if our VLU clinical trial and related follow-on study are successful, we may submit a marketing authorization through the centralized
procedure for Dermagraft for the treatment of VLUs in the European Union. If we are successful in obtaining marketing authorization for the Dermagraft VLU indication in the European Union, we may seek to obtain supplemental authorization to treat
DFUs in Europe by leveraging the VLU authorization and new clinical safety data from the VLU clinical trial. In addition to the European opportunity, we are currently exploring strategies for expansion into Asia, Canada and India. We have obtained
approval for Dermagraft for the treatment of DFUs in South Africa, Israel and Singapore, and are exploring commercialization opportunities in these countries.

Outside the United States, we can market a product only if we receive a marketing authorization and, in some cases, pricing approval, from the appropriate regulatory authorities. The approval procedure
varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval or clearance. The foreign regulatory approval process may include all of the risks associated
with obtaining FDA clearance or approval in addition to other risks. For example, our products in the Member States of the European Economic Area are classified as cellular therapeutic products, which together with gene therapies and somatic cell
therapies, are Advanced Therapy Medicinal Products falling under the scope of Regulation (EC) No 1394/2007 on Advanced Therapy Medicinal Products, or the Advanced Therapies Regulation. The Advanced Therapies Regulation became applicable across the
European Union on December 30, 2008, and provides that tissue engineered products must be authorized by the European Medicines Agency through the centralized procedure, before they can be marketed in the European Economic Area. Under the
Advanced Therapies Regulation, Advanced Therapy Medicinal Products that incorporate as an integral part of the product one or more medical devices and where the cellular or tissue part of the product contains viable cells or tissues, or non-viable
cells or tissues whose action upon the human body can be considered as primary to that of the medical device, are classified as Combined Advanced Therapy Medicinal Products. To ensure an appropriate level of quality and safety, the medical device
part of a Combined Advanced Therapy Medicinal Product must meet the essential requirements laid down in the E.U. Medical Devices Directive (Directive No 93/42/EEC) and the marketing authorization application must include evidence of conformity with
the essential requirements. To enable the European Medicines Agency to verify compliance with the essential requirements, the marketing authorization application for the Combined Advanced Therapy Medicinal Product must include,

where available, the results of the assessment of the medical device by a European Economic Area Notified Body. If the results of a Notified Body assessment are not available at the time of the
submission of the marketing authorization application, the European Medicines Agency will seek an opinion on the conformity of the device part with the essential requirements of the E.U. Medical Device Directives from a suitable designated Notified
Body that is identified in conjunction with the application. The procedure for the approval of Advanced Therapy Medicinal Products and Combined Advanced Therapy Medicinal Products only became effective in December 2008, and the European Commission
and the European Medicines Agency are still in the process of adopting guidelines to assist companies navigate through the process.

We may not obtain foreign regulatory approvals or certifications on a timely basis, if at all. Approval or clearance by the FDA does not ensure approval or certification by regulatory authorities in other
countries, and approval or certification by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. We may be required to perform additional non-clinical or clinical studies even
if there is FDA approval or clearance. If we fail to receive necessary approvals to commercialize our products in foreign jurisdictions on a timely basis, or at all, our business, results of operations and financial condition could be adversely
affected.

Failure to comply with the U.S. Foreign Corrupt Practices Act, or the FCPA, could subject us to, among other things,
penalties and legal expenses that could harm our reputation and have a material adverse effect on our business, results of operations and financial condition.

We are also subject to anti-fraud and anti-bribery laws, such as the FCPA and similar laws in other countries, any violation of which could create a substantial liability for us and also cause a loss of
reputation or business opportunity in the market. The FCPA prohibits U.S. companies and their officers, directors, employees, shareholders acting on their behalf and agents from offering, promising, authorizing or making payments to foreign
officials for the purpose of obtaining or retaining business abroad or otherwise obtaining favorable treatment. Companies must also maintain records that fairly and accurately reflect transactions and maintain internal accounting controls. In
many countries, hospitals and clinics are government-owned and healthcare professionals employed by such hospitals and clinics may meet the definition of a foreign official for purposes of the FCPA. The SEC is currently in the midst of
conducting an informal investigation of numerous medical device companies over potential violations of the FCPA. Although we do not believe we are currently a target, any investigation of any potential violations of the FCPA or other
anti-corruption laws by U.S. or foreign authorities could have an adverse impact on our business, financial condition and results of operations. If we are found to have violated the FCPA or other similar laws, we may face sanctions including
fines, criminal penalties, disgorgement of profits and suspension or debarment of our ability to contract with government agencies or receive export licenses. Certain foreign companies, including some of our competitors, are not subject to
prohibitions as strict as those under the FCPA or, even if subjected to strict prohibitions, such prohibitions may be laxly enforced in practice. If our competitors engage in corruption, extortion, bribery, pay-offs, theft or other fraudulent
practices, they may receive preferential treatment from personnel of some companies or from government officials, which would put us at a disadvantage.

Risks Relating to Owning Our Common Stock and this Offering

Our share price may be
volatile, and you may be unable to sell your shares at or above the offering price.

The initial public offering price
for our shares was determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The market price of our common stock could be subject to wide fluctuations
in response to many risk factors listed in this Risk Factors section, and other risks beyond our control, including:



actual or anticipated fluctuations in our financial condition and results of operations;

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;



additions or departures of key personnel;



competition from existing products or new products that may emerge;



deviations from securities analysts estimates;



issuance of new or updated research or reports by securities analysts;



disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain intellectual property
protection for our technologies;



announcement or expectation of additional financing efforts;



changes in accounting principles;



future sales of our common stock by our executive officers, directors and other stockholders; and



general economic and market conditions.

Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations
often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or
international currency fluctuations, may adversely impact the market price of our common stock. If the market price of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your
investment in us and may lose some or all of your investment.

We may become involved in securities class action litigation that could
divert managements attention from our business and adversely affect our business and could subject us to significant liabilities.

The stock markets have from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stock of medical device and pharmaceutical companies.
These broad market fluctuations as well a broad range of other factors, including the realization of any of the risks described in this Risk Factors section, may cause the market price of our common stock to decline. In the past,

securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because
biotechnology and medical device companies generally experience significant stock price volatility. We may become involved in this type of litigation in the future. Litigation is often expensive and could divert managements attention and
resources from our primary business, which could adversely affect our business. Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments.

No public market for our common stock currently exists, and an active trading market may not develop or be sustained following this
offering.

Prior to this offering, there has been no public market for our common stock. An active trading market may
not develop following the closing of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The
lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or
technologies by using our shares as consideration. The initial public offering price was determined by negotiations between us and the underwriters and may not be indicative of the future prices of our common stock.

If you purchase shares of our common stock sold in this offering, you will experience immediate and substantial dilution in the net tangible book
value of your shares.

The initial public offering price of our common stock in this offering is considerably more
than the net tangible book value per share of our outstanding common stock. Investors purchasing shares of common stock in this offering will pay a price that substantially exceeds the value of our tangible assets after subtracting liabilities. As a
result, these investors will:



incur immediate dilution of $10.96 per share, based on an assumed initial public offering price of $15.00 per share, the midpoint of the price range
set forth on the cover page of this prospectus; and



contribute 75% of the total amount invested to date to fund our company based on an assumed initial public offering price of $15.00 per share, the
midpoint of the price range set forth on the cover page of this prospectus, and will own approximately 34% of the shares of common stock outstanding after the offering.

To the extent outstanding stock options or warrants are exercised, there will be further dilution to new investors. In addition, if we
raise additional funds by issuing equity securities, our stockholders may experience further dilution.

If securities or industry
analysts do not publish research or reports about our business or publish negative reports about our business, our share price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Currently, we do not have any analyst
coverage and we may not obtain analyst coverage in the future. In the event we obtain analyst coverage, we will not have any control over such analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our
shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading
volume to decline.

Future sales of our common stock in the public market could cause our share price to fall.

Sales of a substantial number of shares of our common stock in the public market after this offering, or the perception that these sales
might occur, could depress the market price of our common stock and could impair our

ability to raise capital through the sale of additional equity securities. Based on the number of shares of common stock outstanding as of April 2, 2011, upon the closing of this offering, we
will have 39,821,585 shares of common stock outstanding, assuming no exercise of our outstanding options or the warrants not exercised in connection with the completion of this offering. All of the common stock sold in this offering will be freely
tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by our affiliates as defined in Rule 144 under the Securities Act and any shares purchased by
existing stockholders, which will be restricted from immediate resale as a result of lock-up agreements entered into by such stockholders with the underwriters described in Underwriting elsewhere in this prospectus. The remaining
26,471,585 shares of common stock outstanding after this offering, based on shares outstanding as of April 2, 2011, will be restricted as a result of securities laws, lock-up agreements or other contractual restrictions that restrict transfers. Of
such shares, 26,463,185 shares will be restricted from resale for 180 days, subject to certain extensions, after the date of this prospectus as a result of lock-up agreements and 8,400 shares will be available for resale immediately upon the
closing of this offering. The underwriters may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements with the underwriters prior to expiration of the lock-up period. See Shares Eligible for Future
Sale below.

In addition, the holders of 25,428,944 shares of common stock and holders of warrants to purchase an
aggregate of 932,056 shares of common stock will be entitled to rights with respect to registration of such shares under the Securities Act pursuant to a registration rights agreement between such holders and us. See Certain Relationships and
Related Party TransactionsRegistration Rights Agreement below. If such holders, by exercising their registration rights, sell a large number of shares, they could adversely affect the market price for our common stock. If we file a
registration statement for the purpose of selling additional shares to raise capital and are required to include shares held by these holders pursuant to the exercise of their registration rights, our ability to raise capital may be impaired.

We intend to file a registration statement on Form S-8 under the Securities Act to register all shares of common stock
we may issue under our employee benefit plans. Once we register these shares, they can be freely sold in the public market upon issuance and vesting, subject to a 180-day lock-up period and other restrictions provided under the terms of the
applicable plan and the option agreements entered into with option holders. In addition, our directors may, and we expect that our executive officers will, establish programmed selling plans under Rule 10b5-1 of the Securities Exchange Act of
1934, as amended, or the Exchange Act, for the purpose of effecting sales of our common stock. Any sales of securities by these stockholders, or the perception that those sales may occur, including the entry into such programmed selling plans, could
have a material adverse effect on the trading price of our common stock.

Our management team may invest or spend the proceeds of this
offering in ways with which you may not agree or in ways which may not yield a return.

We intend to use the net
proceeds from this offering for the development of a second manufacturing facility, for working capital and other general corporate purposes and to potentially repay the outstanding balance on our existing term loan as outlined in Use of
Proceeds elsewhere in this prospectus. Additionally we may also use a portion of the net proceeds to acquire complementary products, services, technologies or businesses, although we have no current understandings, agreements or commitments to
do so.

Our management will have considerable discretion in the application of the net proceeds, and you will not have the
opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase our operating results or market value. Until the net proceeds are
used, they may be placed in investments that do not produce significant income or that may lose value.

Our quarterly operating results
may fluctuate significantly.

Our quarterly operating results are difficult to predict and may fluctuate significantly
from period to period. Our operating results will be affected by numerous factors, including:

variations in the level of expenses related to conducting trials assessing Dermagrafts safety and efficacy in the promotion of healing VLUs, and
research and development expenses for any other products we may develop;

expenses related to validating and seeking approval for a new master cell bank; and



changes in sales and marketing expenditures.

If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in
our operating results may, in turn, cause the price of our stock to fluctuate substantially.

Concentration of ownership by our
principal stockholders may result in control by such stockholders of the composition of our board of directors.

Upon completion of this offering, our existing significant stockholders, executive officers, directors and their affiliates will
beneficially own, in the aggregate, approximately 64.0% of our outstanding shares of common stock, and if the underwriters option to purchase additional shares is exercised in full, such persons and their affiliates will beneficially own, in
the aggregate, approximately 60.4% of our outstanding shares of common stock. As a result, these stockholders will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions such as mergers, consolidations or the sale of all or substantially all of our assets. This control could have the effect of delaying or preventing a change of control of our company or
changes in management and will make the approval of certain transactions difficult or impossible without the support of these stockholders.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our
stockholders to replace or remove our current management and limit the market price of our common stock.

Provisions
in our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective upon the closing of this offering, may have the effect of delaying or preventing a change of control or changes in our management.
Some of these provisions:



authorize our board of directors to issue, without further action by the stockholders, up to 10,000,000 shares of undesignated preferred stock and any
authorized but unissued shares of our common stock, which, even in the absence of a takeover, if issued, could substantially dilute the voting or other rights of the holders of our common stock;



require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;



specify that special meetings of our stockholders can be called only by our board of directors, the Chairman, the Chief Executive Officer or the
President, and that the only matters that may be brought before a special meeting are the matters specified in the notice of meeting given by or at the direction of the person calling such meeting and not by our stockholders;



establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to our board of directors;

establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered terms;



require approval by our stockholders of not less than
66 2/3% of all outstanding shares of our voting
stock to amend or repeal our amended and restated bylaws, while allowing a majority of our directors to amend or repeal our amended and restated bylaws without stockholder action;



provide that our directors may be removed only for cause; and



provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203
of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. These anti-takeover provisions and other provisions in our amended and restated
certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors
and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or
cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

We have never paid dividends on our capital stock, and we do not intend to pay dividends for the foreseeable future.

We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable
future. We anticipate that we will retain all of our future earnings for use in the operation of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors.
In addition, our ability to pay cash dividends is currently prohibited by the terms of our loan agreement. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize
any future gains on their investments.

We will incur significant increased costs as a result of operating as a public company, and our
management will be required to devote substantial time to meet compliance obligations.

As a public company, we
will incur significant legal, accounting and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 as well as rules subsequently implemented by
the SEC and the New York Stock Exchange that impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. For
example, we expect to incur significant expense and devote substantial management effort toward ensuring compliance with Section 404. We may need to hire additional accounting and financial staff with appropriate public company experience and
technical accounting knowledge. In addition, on July 21, 2010, the Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation-related provisions in
the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as say on pay and proxy access, and the SEC has since issued final rules implementing say on pay measures. The requirements
of these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and may also place undue strain on our personnel, systems and resources. As a result, it may be more
difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.

This prospectus contains forward-looking statements, including statements regarding the potential sales growth of
Dermagraft, the progress and timing of our pivotal clinical trial to assess the efficacy and safety of Dermagraft in treating venous leg ulcers, or VLUs, the timing of regulatory submissions, the safety and efficacy of our products, the goals of our
research and development activities, estimates of the useful life of our master cell bank and the time necessary to validate a new cell bank, estimates of our manufacturing capacity, estimates of the potential markets for our products, projected
cash needs and our expected future revenue, operations and expenditures. The words may, will, plan, believe, expect, anticipate, intend, estimate,
project, continue, potential, ongoing or the negative of these terms and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters
identify forward-looking statements. Although forward-looking statements reflect our current views, they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements to differ
materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. The risks and uncertainties include, among others:



our revenue and financial results depending solely on sales of Dermagraft for the treatment of diabetic foot ulcers, or DFUs;



our ability to manufacture Dermagraft to meet customer demand;



our ability to increase our current manufacturing capacity and our reliance on a single manufacturing facility;



our reliance on third-party suppliers, some of which are currently the only source for the respective components or materials they supply to us;



our ability to obtain and maintain adequate levels of coverage and reimbursement for our products from government or other third-party payors;



our ability to identity and validate a new master cell bank;



our ability to successfully complete our pivotal clinical trial for the use of Dermagraft in the treatment of VLUs, obtain approval from the U.S. Food
and Drug Administration for that indication, and launch and market the product;



our ability to maintain regulatory approval of Dermagraft for the treatment of DFUs;

our ability to grow our business by acquiring, developing and marketing new products and technologies; and



the impact of healthcare reform legislation.

Forward-looking statements speak only as of the date the statements are made. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information,
future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous

risks and uncertainties, including the risks and uncertainties described above and under Risk Factors, Managements Discussion and Analysis of Financial Condition and
Results of Operations, and elsewhere in this prospectus. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and
uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. We qualify
all of our forward-looking statements by these cautionary statements. The forward-looking statements contained in this prospectus are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.

This prospectus also includes industry data and forecasts that we have prepared based, in part, upon industry data and forecasts obtained from industry publications and surveys. These third-party industry
publications and surveys contain forecasts that generally state the information contained therein has been obtained from sources believed to be reliable. Our internal data and forecasts have not been verified by any independent source and we have
not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions upon which those sources relied. Estimates of historical growth rates in the markets where we operate are not necessarily
indicative of future growth rates in such markets.

We estimate that the net proceeds from the sale of shares of common stock by us will be approximately $113.0 million, after deducting
estimated underwriting discounts and estimated offering expenses payable by us, based upon an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus. We will not
receive any proceeds from the sale of shares of common stock by the selling stockholders.

A $1.00 increase or decrease in the
assumed initial public offering price of $15.00 per share would increase or decrease, respectively, the net proceeds of this offering to us by $7.8 million, assuming the number of shares offered by us, as set forth on the cover page of this
prospectus, remains the same and after deducting estimated underwriting discounts and estimated offering expenses payable by us. An increase or decrease of 1.0 million in the number of shares offered by us would increase or decrease,
respectively, the net proceeds to us by $14.0 million, assuming the initial public offering price of $15.00 per share remains the same and after deducting estimated underwriting discounts and estimated offering expenses payable by us.

We intend to use $50.0 million to $60.0 million of the net proceeds received by us from this offering to develop a second manufacturing
facility. We believe this amount will be sufficient to complete the development of this second facility. We intend to use the remaining net proceeds for working capital and other general corporate purposes. In addition, we may use a portion of the
net proceeds to repay the outstanding balance on our term loan in full, which as of April 2, 2011 was $13.3 million. The term loan bears interest at a fixed per annum rate of 5.0% and matures on September 17, 2014.

We may also use a portion of the net proceeds to in-license or acquire complementary products or technologies or to acquire other
complementary businesses; however, we have no current agreements or commitments to do so. The amounts actually spent for the above purposes may vary significantly and will depend on a number of factors, including our operating costs and other
factors described under Risk Factors. We may find it necessary or advisable to use the net proceeds for other purposes, and our management will retain broad discretion as to the allocation of net proceeds of this offering.

Until we use the net proceeds of this offering, we intend to invest the net proceeds in short-term, investment-grade securities. We
cannot predict whether the proceeds invested will yield a favorable return.

We have never declared or paid cash dividends on our capital stock. We plan to retain any earnings for the foreseeable future to support
our operations and potential growth of our business, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, unless waived, the terms of our existing term loan preclude us, and the terms of any
future debt or credit facility may preclude us, from paying dividends. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend on our financial condition, operating results, capital
requirements, limitations under our term loan and such other factors as our board of directors deems relevant.

The following table sets forth our capitalization as of April 2, 2011 on:



an actual basis; and



a pro forma as adjusted basis to give effect to (1) the automatic conversion of all our outstanding preferred stock into 27,085,638 shares of
common stock upon the completion of this offering pursuant to the provisions of our certificate of incorporation currently in effect, and the resultant reclassification of the carrying value of the preferred stock and preferred stock warrant
liability to stockholders equity (deficit) in connection with such conversion, (2) the filing of our amended and restated certificate of incorporation upon completion of this offering, (3) the sale of 8,350,000 shares of our common
stock in this offering at an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, and (4) the issuance of 3,650,955 shares of common stock as a result of the
expected net exercise or cash exercise of outstanding warrants in connection with the completion of this offering, assuming an initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this
prospectus.

The information in the below table is illustrative only and our capitalization following
the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. The information in the below table should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and related notes thereto included elsewhere in this prospectus.

A $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share would increase or decrease, respectively, our pro forma
as adjusted additional paid-in-capital, total stockholders equity and total capitalization by approximately $7.8 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and
after deducting estimated underwriting discounts and estimated offering expenses payable by us. An increase or decrease of 1.0 million in the number of

shares offered by us would increase or decrease, respectively, the net proceeds to us by $14.0 million, assuming the initial public offering price of $15.00 per share remains the same and after
deducting estimated underwriting discounts and estimated offering expenses payable by us.

The information
in the above table excludes, as of April 2, 2011:



9,003,143 shares of common stock issuable upon the exercise of options outstanding as of April 2, 2011, at a weighted average exercise price
of $1.42 per share;



932,056 shares of common stock issuable upon the exercise of warrants outstanding as of April 2, 2011, at a weighted average exercise price
of $1.39 per share; and



4,923,032 shares of common stock reserved for issuance under our employee benefit plans, of which 826,065 shares and 137,808 shares of common stock
will be issuable upon the exercise and vesting of options and restricted stock units, respectively, approved by our board of directors and that will be granted effective as of the day prior to the public trading date of our common stock, plus annual
scheduled increases in the number of shares reserved for issuance under our Equity Incentive Award Plan and Employee Stock Purchase Plan.

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the
initial public offering price per share of common stock and the pro forma as adjusted net tangible book value per share of common stock after this offering. Net tangible book value per share represents the amount of our total tangible assets less
total liabilities and convertible preferred stock, divided by the number of shares of common stock outstanding. Dilution in pro forma as adjusted net tangible book value per share represents the difference between the amount per share paid by
purchasers of our common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after the completion of this offering.

Our historical net tangible book value as of April 2, 2011 was $(40.4) million, or $(54.98) per share of common stock, without
giving effect to the conversion of our outstanding preferred stock into shares of our common stock upon the completion of this offering. Our pro forma net tangible book value as of April 2, 2011 would have been approximately $47.7 million,
or $1.71 per share of common stock, after giving effect to the conversion of all outstanding shares of our preferred stock into shares of our common stock upon the completion of this offering and the resultant reclassification of the carrying value
of the preferred stock and preferred stock warrant liability to stockholders equity (deficit) in connection with such conversion.

After giving effect to (1) the conversion of all of our preferred stock into shares of our common stock and the sale of the 8,350,000 shares of our common stock in this offering at an assumed initial
public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, less estimated underwriting discounts and estimated offering expenses payable by us, and (2) the issuance of 3,650,955 shares
of common stock as a result of the expected net exercise or cash exercise of outstanding warrants in connection with the completion of this offering, assuming an initial public offering price of $15.00 per share, the midpoint of the price range set
forth on the cover page of this prospectus, our pro forma as adjusted net tangible book value as of April 2, 2011 would have been approximately $160.7 million, or approximately $4.04 per share. This represents an immediate increase in net
tangible book value of $2.33 per share to existing stockholders and an immediate dilution in net tangible book value of $10.96 per share to new investors of common stock in this offering. If the offering price is higher or lower, the dilution to the
new investors will be greater or less. The following table illustrates this per share dilution:

Per Share

Assumed initial public offering price per share

$

15.00

Historical net tangible book value deficit per share as of April 2, 2011

$

(54.98

)

Pro forma increase in net tangible book value per share attributable to conversion of preferred stock

56.69

Pro forma net tangible book value per share as of April 2, 2011

1.71

Increase in pro forma net tangible book value per share attributable to this offering

2.33

Pro forma as adjusted net tangible book value per share after this offering

4.04

Dilution per share to new investors

$

10.96

A $1.00 increase or decrease in the assumed initial public offering price of $15.00 per
share would increase or decrease our pro forma as adjusted net tangible book value after this offering by approximately $7.8 million, or approximately $0.19 per share and $0.20 per share, respectively, and the dilution per share to new investors
ofcommon stock in this offering by approximately $0.81 per share and $0.80 per share, respectively, assuming that the number of shares offered byus, as set forth on the cover page of this prospectus, remains the same, assuming that
the number of shares exercised by the holders of outstanding warrants remains the same and

after deducting the estimatedunderwriting discounts and estimated offering expenses payable by us. An increase or decrease of 1.0 million in the number of shares offered by us
would increase or decrease, respectively, our pro forma as adjusted net tangible book value after this offering by approximately $14.0 million, or $0.35 per share,assuming the initialpublic offering price of $15.00 per share remains
the same and after deducting estimated underwriting discounts and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering
price and terms of this offering determined at pricing.

The following table sets forth, on a pro forma as adjusted
basis, as of April 2, 2011, the differences between the number of shares of common stock purchased from us, the total consideration paid, and the weighted average price per share paid by existing stockholders and new investors purchasing shares of
our common stock in this offering, at an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and estimated
offering expenses payable by us.

Shares Purchased

Total Consideration

WeightedAveragePrice PerShare

Number

Percent

Amount

Percent

Existing stockholders before this offering

31,471,585

79

%

$

40,790,479

25

%

$

1.30

New investors participating in this offering

8,350,000

21

125,250,000

75

15.00

Total

39,821,585

100

%

$

166,040,479

100

%

$

4.17

The table above assumes no sale of common stock by the selling stockholders in this
offering. The sale of 5,000,000 shares of common stock to be sold by the selling stockholders in this offering will reduce the number of shares held by existing stockholders to 26,471,585, or 66% of the total shares outstanding, and will
increase the number of shares held by investors participating in this offering to 13,350,000, or 34% of the total shares outstanding. In addition, if the underwriters option to purchase additional shares is exercised in full, the number of
shares of common stock held by existing stockholders will be further reduced to 61% of the total number of shares of common stock to be outstanding upon completion of this offering, and the number of shares of common stock held by investors
participating in this offering will be further increased to 15,350,000 shares, or 39% of the total number of shares of common stock to be outstanding upon completion of this offering.

A $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share would increase or decrease, respectively,
total consideration paid by new investors and total consideration paid by all stockholders by approximately $8.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after
deducting the estimated underwriting discounts and estimated offering expenses payable by us.

The information above excludes,
as of April 2, 2011:



9,003,143 shares of common stock issuable upon the exercise of options outstanding as of April 2, 2011, at a weighted average exercise price
of $1.42 per share;



932,056 shares of common stock issuable upon the exercise of warrants outstanding as of April 2, 2011, at a weighted average exercise price
of $1.39 per share; and

4,923,032 shares of common stock reserved for issuance under our employee benefit plans, of which 826,065 shares and 137,808 shares of common stock
will be issuable upon the exercise and vesting of options and restricted stock units, respectively, approved by our board of directors and that will be granted effective as of the day prior to the public trading date of our common stock, plus annual
scheduled increases in the number of shares reserved for issuance under our Equity Incentive Award Plan and Employee Stock Purchase Plan.

Because the exercise prices of the outstanding options and warrants are significantly below the assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the
cover page of this prospectus, investors purchasing common stock in this offering will suffer additional dilution when and if these options are exercised. Assuming the exercise in full of the 9,935,199 outstanding options and warrants not exercised
in connection with the completion of this offering, pro forma net tangible book value before this offering at April 2, 2011 would be $3.52 per share, representing an immediate increase of $1.81 per share to our existing stockholders, and, after
giving effect to the sale of shares of common stock in this offering, there would be an immediate dilution of $11.48 per share to new investors in this offering.

In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. If
additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

The following table sets forth certain of our selected historical financial data for the periods ended or as of the dates indicated. The
statements of operations data for the fiscal years ended December 27, 2008, January 2, 2010 and January 1, 2011, and the balance sheet data as of January 2, 2010 and January 1, 2011, have been derived from our audited
financial statements included elsewhere in this prospectus. The statement of operations data for the fiscal years ended December 31, 2006 and December 29, 2007, and the balance sheet data as of December 31,
2006, December 29, 2007 and December 27, 2008, have been derived from our audited financial statements that do not appear in this prospectus. The statements of operations data for the 13 weeks ended April 3, 2010 and April 2, 2011,
and the balance sheet data as of April 2, 2011, have been derived from our unaudited interim financial statements included elsewhere in this prospectus. The unaudited interim financial statements have been prepared on the same basis as the audited
financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position as of April 2, 2011 and our results of operations for the 13 weeks
ended April 3, 2010 and April 2, 2011. Our historical results are not necessarily indicative of our future results. You should read the following financial information together with the information under Managements Discussions and
Analysis of Financial Condition and Results of Operations and our financial statements and the notes included elsewhere in this prospectus.

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a
result of various factors, including, without limitation, those set forth in Risk Factors, Forward-Looking Statements and other matters included elsewhere in this prospectus. The following discussion of our financial
condition and results of operations should be read in conjunction with our financial statements and the notes thereto included elsewhere in this prospectus, as well as the information presented under Selected Financial Data.

Overview

We are a leading regenerative medicine company that develops, manufactures and commercializes cell-based therapies. Our principal product, Dermagraft, has received premarket approval, or PMA, from the
U.S. Food and Drug Administration, or FDA, for the treatment of diabetic foot ulcers, or DFUs. We commercially launched Dermagraft in 2007 and to date have focused our commercialization efforts in the United States. Since launching Dermagraft in
February 2007, our revenue grew from $8.6 million in 2007 to $146.7 million in 2010. We went from generating a loss from operations of $12.8 million and a net loss of $14.0 million, or $35.48 per diluted share of common stock, in 2007 to generating
income from operations of $21.0 million and net income of $7.1 million, or $0.00 per diluted share of common stock, in 2010. For the first quarter of 2011, we had $44.2 million in revenue, $8.1 million in income from operations and net income of
$3.9 million, or $0.01 per diluted share of common stock. As of April 2, 2011, we had cash and cash equivalents of $19.5 million and an accumulated deficit of $39.8 million.

We derive substantially all of our revenue from the sale of Dermagraft in the United States. Our revenue is generated through our direct
sales force of more than 100 representatives, supported by field-based reimbursement specialists and an in-house marketing team. Our customers include hospital-based wound care centers, physician offices, surgery centers and government hospitals.
Our customers generally order directly from us on an as-needed basis and we ship to them using third-party carriers. Coverage of Dermagraft for the treatment of DFUs is currently provided by Medicare, more than 1,000 private plans and numerous
Medicaid programs. We employ a team of reimbursement and policy professionals to provide customer support and facilitate the adoption of the appropriate coding, coverage and reimbursement of Dermagraft.

We are currently conducting a pivotal clinical trial to assess the efficacy and safety of Dermagraft in treating venous leg ulcers, or
VLUs, and we completed enrollment for this trial in November 2010. We expect to report results from the clinical trial in the fourth quarter of 2011 and, if successful, submit a supplement to our existing PMA for Dermagraft to the FDA in the first
quarter of 2012.

Fiscal Year Presentation

Our fiscal years are based on a 52- or 53-week convention, with each quarter ending on the Saturday closest to the calendar quarter end. Our fiscal years include four 13-week reporting periods, with an
additional week in the fourth reporting period of 53-week fiscal years. For ease of presentation in this managements discussion and analysis of financial condition and results of operations, references to:



2008 refer to the fiscal year ended December 27, 2008;



2009 refer to the fiscal year ended January 2, 2010;



2010 refer to the fiscal year ended January 1, 2011;



the first quarter of 2010 refer to the 13 weeks ended April 3, 2010; and

Our managements discussion and analysis of our financial condition and results of operations are based upon our financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, expense and related disclosures. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances. We
evaluate our estimates and assumptions on an ongoing basis. The results of our analyses form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results
may differ, potentially materially, from these estimates under different assumptions or conditions.

We believe the following
critical accounting policies involve significant areas where management applies judgments and estimates in the preparation of our financial statements.

Revenue Recognition

We recognize revenue when persuasive evidence
of an arrangement exists, delivery has occurred, the price is fixed or determinable and collection is reasonably assured. As a result of our limited history of product sales, through the third quarter of 2008 we did not have sufficient history to
estimate expected price credits to be granted to our customers for product sales. As a result, there was uncertainty as to the amount we would ultimately receive in payment from our customers, so the price was determined not to be fixed or
determinable at the time of product delivery. The price was determined to be fixed or determinable upon receipt of cash from our customers and, as such, we recorded revenue related to these sales on a cash basis. Beginning in the fourth quarter of
2008, we determined that we had developed sufficient cumulative historical experience to reliably estimate future pricing credits at the time of product delivery and began to recognize revenue upon product delivery, assuming all other revenue
recognition criteria were met, net of a provision for estimated sales returns and pricing credits.

Sales returns.
Although sales of Dermagraft to our customers are not subject to an explicit right of return, we do, in the ordinary course of business, accept product returns from customers. We maintain a sales return reserve for estimated product returns. We
estimate and accrue a sales return reserve based upon our historical experience and review of trends related to actual returns as a percentage of sales. Our sales return reserves totaled $350,000, $619,000 and $669,000 at January 2, 2010,
January 1, 2011 and April 2, 2011, respectively.

Pricing credits. Historically, in certain situations we have
granted pricing credits to customers in an effort to maintain certain customer relationships. We maintain a reserve for estimated price concessions to be provided. We estimate and accrue these pricing credits based upon our historical experience and
review of trends related to actual pricing credits issued. Our allowance for pricing credits totaled $324,000, $564,000 and $505,000 at January 2, 2010, January 1, 2011 and April 2, 2011, respectively, with provisions to increase the
allowance recorded as a reduction of revenue.

In arrangements with more than one deliverable, we allocate the
arrangement consideration to the units of accounting based on their relative fair values. This situation arises when we provide freezers for the storage of product to certain customers pursuant to an embedded lease. The value of the embedded
lease is recorded as deferred revenue and recognized as revenue on a straight-line basis over the estimated lease term and was less than 1% of revenue in any fiscal year.

Allowance for Doubtful Accounts

We maintain an allowance for
doubtful accounts for estimated credit losses. We continuously monitor collections and payments from our customers and maintain an allowance for doubtful accounts based upon our

historical payment experience and any specific identifiable customer accounts considered at risk or uncollectible. We provide credit, in the normal course of business, to our customers. Our
allowance for doubtful accounts totaled $863,000, $2,148,000 and $2,324,000 at January 2, 2010, January 1, 2011 and April 2, 2011, respectively.

Preferred Stock Warrants

We classify freestanding warrants to
purchase shares of our redeemable convertible preferred stock as liabilities on our balance sheets at fair value because the warrants provide for the issuance of shares that are redeemable. The warrants are subject to remeasurement at each balance
sheet date, and any change in fair value of warrants is recognized as a component of the change in fair value of preferred stock warrants in the statements of operations. We record any change in the fair value of the warrant issued to our Chief
Executive Officer as consideration for consulting services provided to us prior to his commencement of employment in February 2007 as compensation in sales, marketing and administrative expense. We estimated the fair value of these warrants at the
respective balance sheet dates using the Black-Scholes option pricing model. We use a number of assumptions to estimate the fair value, including the remaining contractual terms of the warrant, risk-free interest rates, expected dividend yield and
expected volatility of the price of the underlying common stock. These assumptions are highly judgmental.

Upon the closing of
this offering, our outstanding preferred stock warrants will automatically convert into warrants to purchase common stock and the liability reflected on our balance sheet for preferred stock warrants will be remeasured immediately before converting
and then reclassified to additional paid-in capital at their then fair value.

Stock-Based Compensation

We account for all equity awards to employees and members of our board of directors using a fair-value method and recognize the fair
value of each award as an expense on a straight-line basis over the employees or directors service period. Equity awards issued to non-employees, excluding non-employee directors, are measured at fair value and are revalued at each
subsequent reporting date until the performance is complete or the award vests with a cumulative catch-up adjustment recognized for any changes in their fair value. During 2008, 2009, 2010 and the first quarter of 2010 and 2011, we incurred
stock-based compensation expense of $799,000, $1,427,000, $2,751,000, $398,000 and $629,000, respectively.

For purposes
of calculating stock-based compensation, we estimate the fair value of stock options using a Black-Scholes valuation model, which requires the use of certain subjective assumptions, including expected term, volatility, expected dividend yield,
risk-free interest rate, and the fair value of our common stock. These assumptions generally require significant judgment.

We
estimate the expected term of employee options using the simplified method, which is based on the midpoint between the vesting date and the expiration date. We derive our expected volatility from the historical volatilities of several unrelated
public companies within our industry because we have little information on the volatility of the price of our common stock due to our lack of a trading history. When selecting our industry peer companies to be used in the volatility calculation, we
considered the industry, stage of development, size and financial leverage. Our expected dividend rate is zero, as we have never paid any dividends on our common stock and do not anticipate paying any dividends in the foreseeable future. We base the
risk-free interest rate on the implied yield currently available on zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the option.

We estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of
employee turnover behavior and other factors. If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. If there is a difference

between the assumptions used in determining stock-based compensation expense and the actual factors that become known over time, we may change the input factors used in determining stock-based
compensation costs for future grants. These changes, if any, may materially impact our results of operations in the period such changes are made. We expect to continue to grant stock options in the future, and to the extent that we do, our actual
stock-based compensation expense recognized in future periods will likely increase.

The following table summarizes, by grant
date, the number of stock options granted since January 3, 2010 and the associated per share exercise price, which was equal to the fair value of our common stock for each of these grants.

Numberof OptionsGranted

ExercisePrice perShare

FairValue perShare

January 21, 2010

66,555

$

5.16

$

5.16

May 5, 2010

92,655

$

5.57

$

5.57

June 8, 2010

30,015

$

5.57

$

5.57

July 22, 2010

33,930

$

9.04

$

9.04

July 23, 2010

26,100

$

9.04

$

9.04

November 9, 2010

50,895

$

9.77

$

9.77

December 6, 2010

420,724

$

9.77

$

9.77

The fair value
of the common stock that underlies our stock options has historically been determined by our board of directors based upon information available to it at the time of grant. Because there has been no public market for our common stock, the
determination of the fair value of our common stock was based on the board of directors consideration of various subjective and objective factors, including the following:

the rights, privileges and preferences of our convertible preferred stock;



our historical and forecasted operating and financial performance;



the hiring of key personnel;



the introduction of new products;



the risks inherent in the development and expansion of our products;



the fact that the option grants involve illiquid securities in a private company; and



the likelihood of achieving a liquidity event, such as an initial public offering or sale of our company.

Significant Factors Used in Determining the Value of Our Common Stock

For all of the stock options referenced in the table above, our board of directors determined the fair value of our common stock based on
an evaluation of the factors discussed above, including a review of the most recent independent third-party valuation, at the time of each grant.

The independent third-party valuations arrived at an estimated fair value of our common stock using a weighted combination of two valuation approaches, the income approach and the market approach.

The income approach estimates the value of the company based on expected future cash flow
discounted to present value at a rate of return commensurate with the risk associated with the cash flow. Management provided a financial forecast for each valuation date to be used in the computation of the enterprise value for the income approach.
The financial forecasts took into account our past experience and future expectations. The discount rate is related to both the perceived risk of achieving the forecasted revenue as well as our current capital costs.

The market approach estimates the fair value of a company by applying market multiples of comparable companies that are publicly traded,
as well as the terms of guideline transactions. Comparable companies are selected on the basis of operational and economic similarity to our business. We calculate a multiple of key metrics implied by the enterprise values or acquisition values of
these comparable companies. Based on the range of these observed multiples, an appropriate multiple is determined and applied to our metrics to derive an indication of value. In either scenario, the income approach and the market approach were
relatively consistent throughout the year.

Once an enterprise value is determined, two methods are used to allocate the
enterprise value to each of our classes of stock, the Option Pricing Method and the Probability Weighted Expected Return Method:



The Option Pricing Method values each equity class by creating a series of call options on our enterprise value, with exercise prices based on the
liquidation preferences, participation rights and strike prices of derivatives. This method is generally preferred when future outcomes are difficult to predict and dissolution or liquidation is not imminent.



The Probability Weighted Expected Return Method involves a forward-looking analysis of possible future outcomes. This method is particularly useful
when discrete future outcomes can be predicted at a high confidence level within a probability distribution. Discrete future outcomes considered under the Probability Weighted Expected Return Method included non-initial public offering market-based
outcomes as well as initial public offering scenarios. In the non-initial public offering scenario, a portion of our equity value is allocated to our convertible preferred stock as the aggregate liquidation preference was approximately $70.7 million
at January 1, 2011. In the initial public offering scenario, the equity value is allocated pro rata among the shares of common stock and each series of convertible preferred stock, which causes our common stock to have a higher relative value per
share than under the non-initial public offering scenario.

As we believed we could reasonably estimate the
form and timing of potential liquidity events, we utilized the Probability Weighted Expected Return Method to allocate our value for all four quarters in 2010.

Under the Probability Weighted Expected Return Method, the present value of our common stock was estimated based upon an analysis of the values of our common stock assuming various future liquidity event
scenarios. These liquidity event scenarios were an initial public offering, exit through a sale of the business and partial exit through a recapitalization. The value indications under each scenario are weighted based on the probability of the
scenario occurring to determine a single estimate of the fair value of the common stock.

Independent third-party valuations
were performed on each of December 31, 2009, March 31, 2010, June 30, 2010 and September 30, 2010. Based on an analysis of these valuations and consideration of the other factors described above, our board of directors determined the fair value of
our common stock on each grant date.

On January 21, 2010, our board of directors determined the fair value of our common
stock to be $5.16 per share and granted 66,555 stock options with an exercise price equal to the fair value. On May 5, 2010 and June 8, 2010, our board of directors determined the fair value of our common stock to be $5.57 per share and granted
92,655 and 30,015 stock options, respectively, with an exercise price equal to the fair value. The increase in the fair value of our common stock from January to May resulted from a modest increase in our enterprise

value as we continued to experience revenue growth and to execute our business model. In determining the fair value, the board of directors also reviewed the independent third-party valuation
dated March 31, 2010 and determined that the underlying assumptions included in that valuation report remained accurate and applicable as of each of the stock option grant dates. In making its fair value determination at June 8, 2010, the board of
directors determined that no significant changes had occurred in the business during the previous month.

On July 22 and
23, 2010, our board of directors determined the fair value of our common stock to be $9.04 per share and granted 33,930 and 26,100 stock options, respectively, with an exercise price equal to the fair value. The increase in the fair value of our
common stock from June to July resulted from several factors. We had exceeded our previously budgeted results and updated our forecasts to reflect expected increases in revenue, operating income and cash flow. Additionally, we had received various
indications of interest regarding the company from outside third parties. Our board of directors considered all of these factors, together with the independent third-party valuation dated June 30, 2010, in determining the fair value.

On November 9, 2010, our board of directors determined the fair value of our common stock to be $9.77 per share and granted 50,895 stock
options with an exercise price equal to the fair value. The increase in fair value from July to November primarily related to continued increases in our enterprise value as we continued to experience revenue growth and to meet or exceed our business
model. In determining the fair value, the board of directors also reviewed the independent third-party valuation dated September 30, 2010 and determined that the underlying assumptions included in that valuation report remained accurate and
applicable as of the stock option grant date. Subsequently, the board of directors granted an additional 420,724 stock options on December 6, 2010 at an exercise price of $9.77 per share. In making its fair value determination at December 6, 2010,
the board of directors determined that no significant changes had occurred in the business during the previous month. The board of directors also reviewed the independent third-party valuation dated September 30, 2010 and determined that the
underlying assumptions included in that valuation report remained accurate and applicable as of the stock option grant date.

We have not granted any options since December 6, 2010 and our board of directors has not made any subsequent determinations regarding
the fair value of our common stock for purposes of granting options. However, the proposed price range for this offering as set forth on the cover page of this prospectus reflects additional increase in the fair value of our common stock since
December 2010. We believe the increase in fair value primarily relates to continued increases in our enterprise value as we continue to experience revenue growth, expand our manufacturing capabilities and efficiencies and execute our business model.
In addition, we believe the fair value of our common stock was further increased as it became more likely that we would complete our initial public offering in the first half of 2011, resulting in a corresponding decrease in the discount for lack of
marketability based on the expected time to a liquidity event.

Based on an assumed initial public offering price of $15.00
per share, the midpoint of the range set forth on the cover page of this prospectus, the intrinsic value of all stock options outstanding as of April 2, 2011 would have been $122.3 million.

Determining the fair value of our common stock involves complex and subjective judgments, including estimates of revenue, assumed market
growth rates, cash flows and estimated costs, as well as appropriate discount rates. Although each time we prepared such forecasts for use in determination of the fair value of our common stock, we did so based on assumptions that we believed to be
reasonable and appropriate, and we cannot be certain that any such estimates for earlier periods or for future periods will prove to be accurate.

Income Taxes

We account for income taxes under the asset and
liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred

tax assets and liabilities are measured using enacted rates in effect for the year in which those temporary differences are expected to be recovered or settled. A deferred tax asset is
established for the expected future benefit of net operating loss and credit carryforwards.

Recognition of deferred tax
assets is appropriate when realization of such assets is more likely than not. We recognize a valuation allowance against our net deferred tax assets if it is more likely than not that some portion of the deferred tax assets will not be fully
realizable. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction. At January 2, 2010, we had a full valuation allowance against all of our net deferred tax assets because we determined
that, based on our historical tax position and operational results, realization of our deferred tax assets did not meet the more likely than not standard. During 2010, based upon our cumulative earnings as well as the level of forecasted future
earnings, it became more likely than not that our deferred tax assets would be realized and we determined that a valuation allowance on these assets was no longer required. We recorded a $7.0 million tax benefit representing the release of the
valuation allowance against the net deferred tax assets. In evaluating the realizability of the deferred tax assets, we considered all positive evidence against any potential negative evidence in determining that it was more likely than not these
assets would be realized.

We prescribe a comprehensive model for recognizing, measuring, presenting and disclosing in
financial statements uncertain tax positions taken or expected to be taken on a tax return, including a decision whether to file a tax return in a particular jurisdiction.

We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing
authorities. Assessing an uncertain tax position begins with the initial determination of the positions sustainability and is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.
As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and we will determine whether the factors underlying the sustainability assertion have changed and the amount of the recognized tax benefit is still appropriate.
The recognition and measurement of tax benefits require significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.

Basis of Presentation

Revenue

Our revenue is derived primarily from our sales of Dermagraft. Revenue is recorded net of allowances for estimated
sales returns and pricing credits.

Gross Profit

Gross profit is influenced by cost of revenue. Cost of revenue primarily consists of materials and costs of personnel, equipment, including depreciation, and other overhead costs associated with
manufacturing, logistics, quality assurance and facilities.

Research and Development Expense

Our research and development efforts are focused on clinical development, including our VLU clinical trial and scientific research to
enhance and support our manufacturing and quality assurance processes and the exploration of new indications for Dermagraft and new product opportunities. Research and development expenses consist primarily of personnel-related expenses, clinical
trial costs and contract services. All research and development costs are expensed as incurred.

Sales, marketing and administrative expense consists primarily of personnel-related expenses related to our executive, legal, finance,
sales, marketing, human resource, information technology, customer service and reimbursement functions, as well as fees for professional services and facility costs. Professional services consist principally of external legal, accounting, recruiting
and other consulting services. Our provision for doubtful accounts, insurance premiums, banking fees and shipping costs, as well as insurance verification services provided by an outside service provider to supplement our internal reimbursement
team, are also included in sales, marketing and administrative expense.

First Quarter of 2011 Compared to First Quarter of 2010

Revenue and Gross Profit

First Quarter

2010

2011

Increase

% Increase

(in thousands, except percentages)

Revenue

$

29,544

$

44,185

$

14,641

49.6%

Cost of revenue

5,598

8,830

3,232

57.7%

Gross profit

$

23,946

$

35,355

$

11,409

47.6%

Gross margin

81.1%

80.0%

(1.1)%

Revenue

The increase in revenue was primarily driven by an increase in the volume of unit shipments of Dermagraft. We attribute this growth in revenue primarily to the growing demand for Dermagraft as a treatment
for DFUs and the increase in the number of our sales representatives promoting Dermagraft, which translated into increased sales to our customers and expansion of our overall customer base.

Gross Profit

The increase in gross profit was primarily attributable to increased revenue from product sales in the first quarter of 2011 relative to the first quarter of 2010. As we continued to invest in our
manufacturing operations to support the growth of our business, gross margin was consistent from the first quarter of 2010 to the first quarter of 2011. Additionally, the increase in cost of revenue was primarily due to the growth in the volume of
unit shipments of Dermagraft in the first quarter of 2011 relative to the first quarter of 2010.

Operating Expenses

First Quarter

Increase(Decrease)

% Increase(Decrease)

2010

2011

(in thousands, except percentages)

Research and development

$

3,348

$

3,319

$

(29

)

(0.9

)%

Sales, marketing and administrative

16,863

23,911

7,048

41.8

%

Total operating expenses

$

20,211

$

27,230

$

7,019

34.7

%

Research and Development Expense

Research and development expense was consistent from the first quarter of 2010 to the first quarter of 2011 as we continued to incur
expenses in conducting a pivotal clinical trial for evaluating Dermagraft for the treatment of VLUs. Research and development expense also included stock-based compensation expense of $82,000 and $90,000 in the first quarters of 2010 and 2011,
respectively. Although our VLU clinical trial is

expected to be completed in 2011, we expect research and development expense to continue to increase in absolute dollars, but decrease as a percentage of revenue.

Sales, Marketing and Administrative Expense

The increase in sales, marketing and administrative expense was driven primarily by a $3.7 million increase in personnel-related expense, including sales commissions, resulting from our increased
headcount, a $552,000 increase in professional service expenses resulting from an increase in the use of third-party service providers to support the growth in our business and a $631,000 increase in travel-related expenses as a result of the growth
in the sales and marketing organizations. Additionally, a $393,000 increase in costs incurred for customer support and a $392,000 increase in our provision for doubtful accounts and various other expenses to support the growth in our business also
contributed to the increase in sales, marketing and administrative expense. Sales, marketing and administrative expense included stock-based compensation expense of $273,000 and $499,000 in the first quarters of 2010 and 2011, respectively. We
expect sales, marketing and administrative expenses to increase in future periods as we continue to grow our sales force and to incur the associated infrastructure costs to support our growth.

Other Expense

First Quarter

Increase(Decrease)

% Increase(Decrease)

2010

2011

(in thousands, except percentages)

Interest expense, net

$

(545

)

$

(194

)

$

(351

)

(64.4

)%

Change in fair value of preferred stock warrants

(531

)

(1,370

)

839

158.0

%

Total other expense

$

(1,076

)

$

(1,564

)

$

488

(45.4

)%

The decrease in interest expense, net, was primarily a result of a lower interest rate
associated with our amended loan agreement during the first quarter of 2011 compared to the first quarter of 2010.

The
increase in the change in fair value of preferred stock warrants from the first quarter of 2010 to the first quarter of 2011 was due primarily to the increase in fair value of the Series B, Series C and Series C-1 convertible preferred stock. This
change reflects the mark to market adjustment for our warrant liabilities. The increase in the fair value of the preferred stock warrants is primarily attributable to the overall increase in the value of the company as discussed above under
Critical Accounting Policies and EstimatesStock-Based Compensation.

Income Tax Provision

For the first quarter of 2011, we recorded an income tax provision of $2.6 million with an effective tax rate of 40.3%,
compared to an income tax provision of $2.7 million with an effective tax rate of 100.2% for the first quarter of 2010. Our effective tax rate for the first quarter of 2011 does not differ significantly from our statutory rates for federal and state
income taxes. The effective tax rate for the first quarter of 2010 was significantly impacted by various non-deductible expenses primarily consisting of the change in fair value of preferred stock warrants and the limitation on meals and
entertainment expense, which resulted in an effective tax rate of 100.2%.

The increase in revenue was primarily driven by an increase in the volume of unit shipments of Dermagraft. We attribute this growth in revenue primarily to the growing demand for Dermagraft as a treatment
for DFUs and the increase in the number of our sales representatives promoting Dermagraft, which translated into increased sales to our customers and expansion of our overall customer base.

Gross Profit

The increase in gross profit was primarily attributable to increased revenue from product sales in 2010 relative to 2009. The increase in gross margin was primarily attributed to the allocation of fixed
costs over a higher revenue base. Additionally, the increase in cost of revenue was primarily due to the growth in the volume of unit shipments of Dermagraft in 2010 relative to 2009.

Operating Expenses

2009

2010

Increase

% Increase

(in thousands, except percentages)

Research and development

$

7,741

$

17,071

$

9,330

120.5

%

Sales, marketing and administrative

49,516

77,848

28,332

57.2

%

Total operating expenses

$

57,257

$

94,919

$

37,662

65.8

%

Research and Development Expense

The increase in research and development expense was driven primarily by a $5.4 million increase in expenses associated with our pivotal
clinical trial of Dermagraft for the treatment of VLUs and a $2.4 million increase in personnel-related expense resulting from increased headcount. The increase in expenses associated with the VLU clinical trial primarily resulted from additional
patient fees due to increased patient enrollment throughout 2010. During 2010, we also initiated various research projects to enhance and support our manufacturing and quality assurance processes and to explore new indications for Dermagraft, which
also contributed to the increase in research and development expense. Research and development expense also included stock-based compensation expense of $128,000 and $347,000 in 2009 and 2010, respectively.

Sales, Marketing and Administrative Expense

The increase in sales, marketing and administrative expense was driven primarily by a $14.1 million increase in personnel-related expense, including sales commissions, resulting from our increased
headcount, a $2.3 million increase in professional service expenses resulting from an increase in the use of third-party service providers to support the growth in our business, a $2.2 million increase in travel-related expenses as a result of the
growth in the sales and marketing organizations, and a $1.7 million increase in our provision for doubtful accounts. Additionally, a $1.4 million increase in costs incurred for customer support, a $1.1 million increase in

shipping and supply costs resulting from the increase in unit shipments of Dermagraft and various other expenses to support the growth in our business also contributed to the increase in sales,
marketing and administrative expense. Sales, marketing and administrative expense included stock-based compensation expense of $1.2 million and $2.2 million in 2009 and 2010, respectively.

Other Expense

2009

2010

Increase(Decrease)

%
Increase(Decrease)

(in thousands, except percentages)

Interest expense, net

$

(2,424

)

$

(1,635

)

$

789

(32.5

)%

Change in fair value of preferred stock warrants

(6,075

)

(12,439

)

(6,364

)

104.8

%

Loss from extinguishment of debt



(653

)

(653

)



Total other expense

$

(8,499

)

$

(14,727

)

$

(6,228

)

73.3

%

The decrease in interest expense, net, was primarily a result of a lower average debt balance
during 2010 compared to 2009 as well as a lower interest rate associated with our amended loan agreement.

The increase in the
change in fair value of preferred stock warrants from 2009 to 2010 was due primarily to the increase in fair value of the Series B, Series C and Series C-1 convertible preferred stock. This change reflects the mark to market adjustment for our
warrant liabilities. The increase in the fair value of the preferred stock warrants from 2009 to 2010 is primarily attributable to the overall increase in the value of the company as discussed above under Critical Accounting Policies and
EstimatesStock-Based Compensation.

In September 2010, we amended our then-existing loan agreement. In connection
with the amendment, we repaid all principal amounts outstanding under the related promissory notes, which amounted to approximately $10.0 million, together with accrued interest and related expenses. We were also subject to a prepayment penalty
of $300,000 and a final interest payment of $600,000, of which $742,000 was paid at the time of the amendment and the remaining $158,000 is due upon the maturity of the new loan in September 2014. As the amendment to the loan agreement represented
an exchange of debt instruments with substantially different terms, the amendment was treated as a debt extinguishment and we recognized a $653,000 loss on extinguishment of debt during 2010.

Income Tax Provision (Benefit)

For 2010, our income tax benefit
was $870,000, compared to an income tax provision of $570,000 for 2009. During 2010, based upon our cumulative earnings as well as the level of forecasted future earnings, it became more likely than not that our deferred tax assets would be
realized, so we released our valuation allowance. We recorded a $7.0 million tax benefit representing the release of the valuation allowance against the net deferred tax assets. Additionally, we recorded a current income tax provision of $6.1
million in 2010 for federal and state income taxes as a result of the taxable income generated during the year after use of net operating losses, resulting in a net income tax benefit of $870,000 for the year ended January 1, 2011.

The increase in revenue was primarily driven by an increase in the volume of unit shipments of Dermagraft. We attribute the growth in revenue primarily to the growing demand for Dermagraft as a treatment
for DFUs and the increase in the number of our sales representatives promoting Dermagraft, which translated into increased sales to our customers and expansion of our overall customer base. In addition, as a result of having the ability to develop
reasonable estimates of price credits, we were able to recognize $4.3 million of previously deferred revenue in 2009.

Gross Profit

The increase in gross profit was primarily attributable to increased revenue from product sales in 2009 relative to 2008. The increase in gross margin was primarily attributable to the allocation of fixed
costs over a higher revenue base. Additionally, the increase in cost of revenue was primarily due to the growth in the volume of unit shipments of Dermagraft in 2009 relative to 2008.

Operating Expenses

2008

2009

Increase

% Increase

(in thousands, except percentages)

Research and development

$

1,002

$

7,741

$

6,739

672.6

%

Sales, marketing and administrative

28,869

49,516

20,647

71.5

%

Total operating expenses

$

29,871

$

57,257

$

27,386

91.7

%

Research and Development Expense

The increase in research and development expense was driven primarily by a $5.4 million increase in expenses associated with our ongoing
VLU clinical trial and a $842,000 increase in personnel-related expense resulting from our increased headcount. We initiated the VLU clinical trial in 2009. Research and development expense also included stock-based compensation expense of $33,000
and $128,000 during 2008 and 2009, respectively.

Sales, Marketing and Administrative Expense

The increase in sales, marketing and administrative expense was driven primarily by a $11.6 million increase in personnel-related expense
resulting from our increased headcount, a $2.7 million increase in professional service expenses resulting from an increase in the use of third-party service providers to support the growth in our business and a $1.8 million increase in
travel-related expenses as a result of the growth in the sales and marketing organizations. Sales, marketing and administrative expense also included stock-based compensation expense of $639,000 and $1.2 million during 2008 and 2009, respectively.

Other Expense

2008

2009

Increase

% Increase

(in thousands, except percentages)

Interest expense, net

$

(1,280

)

$

(2,424

)

$

(1,144

)

89.4

%

Change in fair value of preferred stock warrants

(1,318

)

(6,075

)

(4,757

)

360.9

%

Total other expense

$

(2,598

)

$

(8,499

)

$

(5,901

)

227.1

%

The increase in interest expense, net, was due primarily to an increase in the average outstanding
debt during 2009, compared to 2008, and the amortization of various debt issue costs primarily related to outstanding warrants in 2009.

The increase in the change in fair value of preferred stock warrants from 2008 to 2009 was
due primarily to the increase in fair value of the Series B, Series C and Series C-1 convertible preferred stock. This change reflects the mark to market adjustment for our warrant liabilities. The increase in the fair value of the preferred stock
warrants from 2008 to 2009 is primarily attributable to the overall increase in the value of the company as discussed above under Critical Accounting Policies and EstimatesStock-Based Compensation.

Income Tax Provision

For 2008, our income tax provision was $146,000, compared to an income tax provision of $570,000 for 2009. The increase in the income tax provision from 2008 to 2009 resulted from an increase in taxable
income generated during the period. The income tax provision for 2008 and 2009 primarily resulted from state income taxes as well as a federal alternative minimum tax on taxable income generated during the period. For 2008 and 2009, California did
not allow companies to use net operating loss carryforwards to offset current taxable income.

Liquidity and Capital Resources

Historically, we have financed our operations primarily through sales of our equity securities and a combination of
debt financing and cash flows generated from our operations. Our principal source of liquidity as of April 2, 2011 consisted of $19.5 million of cash and cash equivalents, compared to $22.5 million as of January 1, 2011. Additionally, as of April 2,
2011, we had approximately $13.8 million available under our revolving line of credit. We believe our current cash and cash equivalents will be sufficient to satisfy our liquidity requirements for at least the next 12 months.

In September 2007, we entered into a $10.0 million revolving credit facility. We borrowed the entire $10.0 million under the terms of the
agreement and paid interest on the outstanding balance at a minimum interest rate of 10.0% and a maximum interest rate of 14.5% until we repaid the loan in full in December 2008. The payoff amount totaled $10.2 million, including outstanding
principal of $10.0 million and interest and non-utilization fees of $150,000.

In December 2008, we entered into a $23.0
million loan and security agreement with two lenders under which we borrowed $15.0 million and obtained an additional $8.0 million of available revolving credit. Borrowings under the loan agreement were subject to interest at 11.15% per annum,
with interest-only payments through October 2009. We began making monthly principal and interest payments in the amount of $575,000 in November 2009.

In September 2010, we entered into an amended and restated loan agreement, the loan agreement, which increased our borrowing capacity to a $30.0 million credit facility. The credit facility consists of a
$15.0 million term loan and a revolving credit line of up to $15.0 million. On the date the loan agreement was entered into, we used approximately $10.0 million of the term loan to repay the outstanding amount under the original loan agreement,
resulting in net cash received by us of $4.2 million after the payment of various fees. The term loan bears interest at a fixed per annum rate of 5.0%. We made interest-only payments through October 2010, subsequent to which we began to make the
first of 48 monthly principal and interest payments of $345,000. Borrowings under the revolving credit facility are based on 80% of our eligible accounts receivable, mature in September 2013 and require monthly interest payments that accrue at the
prime rate of interest. As of January 1, 2011 and April 2, 2011, there were no borrowings outstanding under the revolving credit facility. The credit facility is collateralized by all of our presently existing and subsequently acquired personal
property assets, and subjects us to certain affirmative and negative covenants, including limitations on our ability to transfer or dispose of assets, merge with or acquire other companies, make investments, pay dividends, incur additional
indebtedness and liens, conduct transactions with affiliates and terminate or replace our Chief Executive Officer, Kevin Rakin. Upon the occurrence of an event of default, the lender, among other things, can declare all

indebtedness due and payable immediately. An event of default includes our failure to pay any amount due and payable under the loan agreement, the occurrence of a material adverse change in our
business as defined in the loan agreement, our breach of any covenant in the loan agreement, subject to a grace period in some cases, our default on any debt payment to a third party in an amount exceeding $50,000 or any voluntary or involuntary
insolvency proceeding. In addition, we must maintain (1) liquidity of at least $6.0 million, (2) a minimum fixed charge coverage ratio of 1.5 to 1, measured monthly, and (3) positive net income measured on a rolling three-month basis.
We were in compliance with all of these covenants as of January 1, 2011 and April 2, 2011.

Our primary uses of cash
are to fund operating expenses, purchases of inventory, the acquisition of property and equipment and payments on debt and income taxes.

Our primary sources of cash are cash receipts on accounts receivable from our sales of Dermagraft. Aside from the growth in amounts billed to our customers, net cash collections of accounts receivable are
impacted by the efficiency of our cash collections process, which can vary from period to period.

The following table
summarizes our cash and cash equivalents and working capital for the following periods ended:

January
2,2010

January 1,2011

April 2,2011

(in thousands)

Cash and cash equivalents

$

12,586

$

22,455

$

19,537

Working capital

$

23,067

$

42,309

$

42,974

Below is a
summary of our cash flows provided by (used in) operating activities, investing activities and financing activities for the periods indicated:

First Quarter

2008

2009

2010

2010

2011

(in thousands)

Net cash (used in) provided by operating activities

$

(5,121

)

$

2,688

$

14,299

$

(1,443

)

$

169

Net cash used in investing activities

(1,628

)

(2,817

)

(4,628

)

(686

)

(2,070

)

Net cash provided by (used in) financing activities

1,839

(895

)

198

(1,800

)

(1,017

)

Net (decrease) increase in cash and cash equivalents

$

(4,910

)

$

(1,024

)

$

9,869

$

(3,929

)

$

(2,918

)

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities in the first quarter of 2011 primarily reflected our net income of $3.9 million and a $7.1
million decrease in working capital partially offset by various non-cash adjustments of $3.4 million, including a $1.4 million increase in the fair value of outstanding warrants. The use of working capital was primarily driven by the continued
growth of our business and increase in sales during the first quarter of 2011. The significant growth in our revenue resulted in an increase in accounts receivable. Based on our sales growth and our expectation for a continued increase in the demand
for Dermagraft, we also increased our purchases of inventory and overall manufacturing activity during the first quarter of 2011.

Net cash used in operating activities in the first quarter of 2010 primarily reflected a $3.3 million decrease in working capital partially offset by various non-cash adjustments of $1.9 million. The
use of working capital was primarily driven by the significant growth of our business and increase in sales during the first quarter of 2010. The significant growth in our revenue resulted in an increase in both accounts receivable and inventories.
We also experienced a significant increase in our overall spending to support our growth, which resulted in an increase in accounts payable and accrued liabilities.

Net cash provided by operating activities in 2010 primarily reflected our net income of
$7.1 million and a $5.4 million decrease in working capital offset by various non-cash adjustments of $12.5 million, including a $12.4 million increase in the fair value of outstanding warrants, $2.8 million of stock-based compensation
expense and a $7.0 million tax benefit as a result of the release of our valuation allowance against the net deferred tax assets. The use of working capital was primarily driven by the continued growth of our business and increase in sales during
2010. The significant growth in our revenue resulted in an increase in accounts receivable. Based on our sales growth and our expectation for a continued increase in the demand for Dermagraft, we also increased our purchases of inventory and overall
manufacturing activity during 2010. Our accounts payable and accrued expenses increased in 2010 to support our increased production volumes and overall operational growth, including funding of our research and development activities.

Net cash provided by operating activities in 2009 primarily reflected a net loss of $0.9 million and a $6.1 million decrease in
working capital offset by various non-cash adjustments of $9.8 million. The use of working capital was primarily driven by the continued growth of our business and increase in sales during 2009. The significant growth in our revenue resulted in an
increase in accounts receivable. Based on our sales growth and our expectation for a continued increase in the demand for Dermagraft, we also increased our purchases of inventory and overall manufacturing activity during 2009. We also experienced a
significant increase in our overall spending to support our continued growth, which resulted in an increase in accounts payable and accrued liabilities.

Net cash used in operating activities in 2008 primarily reflected a net loss of $3.9 million and a $5.0 million decrease in working capital partially offset by various non-cash adjustments of $3.8
million. The use of working capital was primarily driven by the significant growth of our business and increase in sales during 2008. The significant growth in our revenue resulted in an increase in both accounts receivable and inventories. We also
experienced a significant increase in our overall spending to support our growth, which resulted in an increase in accounts payable and accrued liabilities.

Net Cash Used in Investing Activities

Net cash used in
investing activities during the first quarter of 2010 and the first quarter of 2011 consisted primarily of purchases of equipment and leasehold improvements. During the first quarter of 2011, we purchased equipment to support the manufacturing and
distribution of Dermagraft, purchased furniture and completed leasehold improvements for our additional office space in California and also purchased various software solutions to support the growth in our business. During the first quarter of 2010,
equipment purchases were primarily to support the manufacturing and distribution of Dermagraft.

Net cash used in
investing activities during 2008, 2009 and 2010 consisted primarily of purchases of equipment and leasehold improvements. During 2010, we purchased equipment to support the manufacturing and distribution of Dermagraft, purchased furniture and
completed leasehold improvements for our additional office space in California and also purchased freezers that we provided to certain customers for the storage of Dermagraft. During 2008 and 2009, equipment purchases were primarily to support the
manufacturing and distribution of Dermagraft. We also purchased freezers that we provided to certain customers for the storage of Dermagraft during 2008 and 2009.

We anticipate making significant capital expenditures in the future, primarily for purchases of equipment to be used in the expansion of our manufacturing capacity, including the development of a second
manufacturing site, and research and development. Beyond our investment in capital equipment, we expect to invest capital in expanding our commercial operations and may also selectively in-license or acquire complementary products and technologies
that will allow us to leverage our commercialization and manufacturing experience.

Net cash used in financing activities in the first quarter of 2010 and the first quarter of 2011 was primarily a result of payments on
our outstanding debt.

Net cash provided by financing activities in 2010 was primarily a result of refinancing our debt
obligations, resulting in $15.0 million in payments on outstanding debt partially offset by net proceeds of $14.8 million from our new debt.

Net cash used in financing activities in 2009 was primarily a result of payments on our outstanding debt.

Net cash provided by financing activities in 2008 was primarily a result of refinancing our debt obligations, resulting in net proceeds of $14.7 million from our new debt partially offset by $12.8 million
in payments on previously outstanding debt.

Contractual Obligations and Commitments

The following table summarizes our future contractual obligations as of January 1, 2011:

Payments Due by Period

Total

Less thanOne
Year

1-3 Years

3-5 Years

More thanFive
Years

(in thousands)

Debt obligations (1)

$

14,148

$

3,518

$

7,584

$

3,046

$



Debt interest (2)

1,396

627

706

63



Operating lease obligations (3)

25,370

2,536

4,877

4,200

13,757

Total

$

40,914

$

6,681

$

13,167

$

7,309

$

13,757

(1)

Represents principal payments due on our outstanding term loan.

(2)

Includes interest on regular scheduled debt payments on our outstanding term loan at an annual rate of 5.0%.

(3)

Includes minimum rental payments on all facility leases.

There were no material changes in our contractual obligations in the first quarter of 2011.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Quantitative and Qualitative Disclosures
About Market Risk

Interest Rate Risk

Our cash and cash equivalents as of April 2, 2011 consisted primarily of cash and money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in
the general level of U.S. interest rates. However, because of the short-term nature of the instruments in our portfolio, we do not believe a 10% change in market interest rates would have a material impact on our financial condition or results
of operation. We do not have any derivative financial instruments.

Foreign Exchange Risk

All of the revenue we have generated to date has been paid in U.S. dollars. Additionally, our key suppliers are primarily based in the
United States with payments denominated in U.S. dollars. Some of the clinical sites that have been participating in our VLU clinical trial are outside of the United States and payments made by us at such sites have been made in the Euro, U.K. pound
sterling or South African rand. Foreign

currency gains and losses associated with these expenditures have not been significant to date. Accordingly, we have limited exposure to foreign currency exchange rates and do not enter into
foreign currency hedging transactions.

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board issued authoritative guidance that establishes a selling-price hierarchy for
determining the selling price of each element within a multiple-deliverable arrangement. Specifically, the selling price assigned to each deliverable is to be based on vendor-specific objective evidence, or VSOE, if available, third-party evidence,
if VSOE is unavailable, and estimated selling prices if neither VSOE or third-party evidence is available. In addition, the guidance eliminates the residual method of allocating arrangement consideration and instead requires allocation using the
relative selling price method. The guidance will be effective prospectively for multiple-deliverable revenue arrangements entered into, or materially modified, in fiscal years beginning on or after June 15, 2010. We adopted the new guidance on
January 2, 2011 and it did not have a material impact on our revenue recognition.

We are a
leading regenerative medicine company that develops, manufactures and commercializes cell-based therapies. Our principal product, Dermagraft, has received a PMA from the U.S. Food and Drug Administration for the treatment of diabetic foot ulcers.
From the commercial launch of Dermagraft in 2007 through December 31, 2010, we sold over 200,000 units of Dermagraft that have been used to treat an estimated 50,000 patients. Our revenue grew from $8.6 million in 2007 to $146.7 million in
2010. We went from generating a loss from operations of $12.8 million and a net loss of $14.0 million, or $35.48 per diluted share of common stock, in 2007 to generating income from operations of $21.0 million and net income of $7.1 million, or
$0.00 per diluted share of common stock, in 2010. For the first quarter of 2011, we had $44.2 million in revenue, $8.1 million in income from operations and net income of $3.9 million, or $0.01 per diluted share of common stock.

Dermagraft is a regenerative bio-engineered skin substitute that assists in restoring damaged tissue and is currently indicated for the
treatment of certain types of diabetic foot ulcers, or DFUs. DFUs are open sores or ulcers on the feet that can occur in people with diabetes as a result of peripheral neuropathy, or damage to the nerves, and can severely compromise a patients
quality of life. DFU patients carry a one-in-seven lifetime risk of developing osteomyelitis, or an infection of the bone, and a one-in-five lifetime risk of amputation, which has an associated 50% five-year mortality rate. Based on industry
sources, we estimate that DFUs affect nearly 900,000 people annually in the United States, of which we estimate approximately 60% to 70% are slow healers that could be treated with Dermagraft based on its approved indication. As a result, we believe
our total addressable market opportunity in the United States is approximately $3 billion.

Dermagraft consists of living
cells and a bioabsorbable mesh scaffold and is used in conjunction with conventional therapy to treat certain types of DFUs. Data from the pivotal clinical trial of Dermagraft completed in 2001 demonstrated that the weekly application of Dermagraft
and conventional therapy for up to eight weeks increased the proportion of DFUs that achieved 100% closure at 12 weeks by 64%, a statistically significant improvement, when compared to the use of conventional therapy alone. No serious adverse events
determined to have been related to Dermagraft were reported in this trial or have been reported in the estimated 50,000 patients that have been subsequently treated with our product.

We manufacture Dermagraft using proprietary cell-based techniques that were developed over a 20-year period with significant capital
investment. The manufacturing of regenerative medicine products is highly complex and involves a number of regulatory challenges, providing a significant barrier to entry for potential competitors. We manufacture our products in a state-of-the-art
facility located in La Jolla, California that is registered with the U.S. Food and Drug Administration, or FDA, and is ISO 13485 (2003) registered.

We employ an in-house commercial team of over 150 professionals, including sales, marketing, reimbursement and policy professionals with backgrounds in the pharmaceutical, medical device and biotechnology
industries. Our direct sales force consists of more than 100 representatives that target hospital-based wound care centers, physician offices, surgery centers and government hospitals. Our team of reimbursement and policy professionals facilitates
coding, coverage and reimbursement for Dermagraft, is responsible for customer support and maintains an ongoing dialogue with policy makers and third-party payors. Coverage for up to eight weekly applications of Dermagraft for the treatment of DFUs
is currently provided by Medicare, more than 1,000 private plans and numerous Medicaid programs.

Our product portfolio
includes a potential new indication for Dermagraft for the treatment of venous leg ulcers, or VLUs, and TransCyte, which has received premarket approval, or PMA, from the FDA for the treatment of certain types of severe burns. VLUs develop as a
result of vascular insufficiency and affect approximately three million people per year in the United States. We are currently conducting a pivotal clinical trial to assess the efficacy and safety of Dermagraft in treating VLUs, and we completed
enrollment for this trial in November 2010 and expect to report results from the trial in the fourth quarter of 2011. We are aware that at least four times previously other companies products have failed to achieve the clinical trial results
necessary to

gain FDA approval for a VLU indication. In 2005, a pivotal clinical trial conducted by Smith & Nephew plc, our predecessor in ownership of the Dermagraft assets, led to the FDAs denying
approval of Dermagraft for the treatment of the indication. We have designed our trial differently than the trial conducted by Smith & Nephew as well as the other failed trials, most importantly in terms of enrollment criteria and, if our trial
is successful, we plan on submitting a supplement to our existing PMA for Dermagraft to the FDA in the first quarter of 2012. We expect that we could market Dermagraft for the treatment of VLUs to our existing customer base using the same direct
sales force that markets Dermagraft for the treatment of DFUs. Although we have not yet commercialized TransCyte, we believe a potential opportunity exists to market this product through arrangements with state, federal or international government
agencies.

Industry Overview

Diabetes is a chronic, life-threatening disease for which there is currently no known cure. The International Diabetes Federation estimates that in 2010 the worldwide prevalence of diabetes was 285
million. According to the Centers for Disease Control and Prevention, in the United States alone, almost 26 million people, or approximately 8% of the population, have diabetes. The incidence of diabetes is expected to grow due to increasing
overall life expectancy and the rising incidence of obesity.

If left untreated or mismanaged, diabetes can cause
hyperglycemia, an increase in blood glucose levels, which often leads to a reduction in blood flow and the development of peripheral neuropathy, most commonly in the feet. Peripheral neuropathy can cause patients to lose sensation in their feet,
which may prevent them from noticing injuries, including sores caused by repetitive trauma, such as blisters resulting from walking, ulcers caused by a single major trauma, such as a severe cut or burn to the foot, and foot problems, such as
calluses and hammertoes. If not treated properly, these injuries can develop into DFUs. DFUs can severely compromise a patients quality of life as a result of missed work days, reduced mobility and hospitalization, and in some cases
amputation. In 1999, the American Diabetes Association formally recognized the importance and benefits of DFU treatment, including improving function and quality of life, controlling infections, maintaining health status, preventing amputation and
reducing costs.

Of the nearly 26 million people with diabetes in the United States, industry sources estimate that up to
25% will develop a DFU in their lifetime. Currently, DFUs affect nearly 900,000 people annually in the United States. Typically, those patients that seek treatment are initially treated with conventional therapy, which consists of debriding, or
removing dead tissue or foreign material in order to expose healthy tissue, and cleaning the ulcer, applying a wet-to-dry gauze dressing once per week and using therapeutic, pressure-reducing footwear.

We believe conventional therapy alone, which can continue for periods ranging from several weeks to several years, is often inadequate to
effectively treat DFUs. A meta-analysis of clinical studies involving approximately 1,400 patients has shown that only 24% of patients that receive conventional therapy alone will achieve full closure of the DFU within 12 weeks. We believe that most
of the patients who do not respond to conventional therapy alone are candidates for Dermagraft at some point during the DFU treatment process. As such, we estimate our total addressable market opportunity to be approximately $3 billion annually
in the United States.

Our Solution

Dermagraft utilizes regenerative medicine to advance and stimulate the bodys healing process, resulting in quicker healing times and improved ulcer closure rates. Regenerative medicine is the
process of creating living, viable tissues to repair or replace tissue or organ function lost due to age, disease, damage or congenital defects. Regenerative medicine was pioneered by the development of tissue engineering, a process that involves
the ex vivo creation of replacement tissues intended for subsequent in vivo implantation.

We believe that Dermagraft
addresses the shortcomings of conventional therapy in healing DFUs, which primarily relies on the bodys ability to heal itself. Patients suffering from DFUs generally have compromised health. In addition, the cells comprising a DFU have
generally ceased dividing and are incapable of providing the necessary proteins or engaging in the necessary metabolic activity to heal the ulcer. This combination of already compromised health and insufficient cellular activity make it unlikely
that a patients body will be able to heal

the DFU on its own or when treated with conventional therapy alone. Dermagraft is designed to stimulate healing in two primary ways. First, when Dermagraft is placed on the ulcer, its mesh
material is gradually absorbed and the human cells grow into place and replace the damaged skin. Second, the living cells in Dermagraft produce many of the same proteins and growth factors found in healthy skin, which help replace and rebuild the
damaged tissue in the DFU.

Clinical studies have demonstrated that if a DFU is not closed by 50% within the first four weeks
of conventional therapy, there is only a 9% chance the DFU will reach full closure using conventional therapy alone. We believe this data highlights the need for a more effective treatment alternative. Dermagraft used in conjunction with
conventional therapy has demonstrated improved efficacy in healing DFUs as compared to conventional therapy alone. In our pivotal clinical trial, the weekly application of Dermagraft and conventional therapy for up to eight weeks increased the
proportion of DFUs that achieved 100% closure at 12 weeks by 64%, when compared to the use of conventional therapy alone. Patients treated in the Dermagraft group were 1.7 times more likely to achieve 100% closure than patients receiving
conventional therapy alone. These results demonstrated statistically significant improvements.

The following depicts a DFU
and illustrates the healing process from the initial application of Dermagraft through closure.

Preliminary results from a cost effectiveness analysis that we completed in 2011 suggest that Dermagraft is
more cost effective than conventional therapy alone due to its ability to accelerate ulcer closure. This cost effectiveness analysis, which compared Dermagraft in conjunction with conventional therapy to conventional therapy alone for the treatment
of DFUs, simulated results of a 10,000 patient population with DFUs projected out over a 52-week period. The model used in this analysis applied data from the 2001 Dermagraft clinical trial and costs from recent Centers for Medicare and Medicaid
Services, or CMS, and private insurer claims databases.

Our Strengths

We believe we are a leader in the field of regenerative medicine and have the following principal strengths:

FDA-approved regenerative medicine products. Our principal product, Dermagraft, has received a PMA from the FDA for
the treatment of DFUs. In February 2007, we launched Dermagraft in the United States for the treatment of DFUs and, through December 31, 2010, we have sold over 200,000 units that have been used to treat an estimated 50,000 patients with no
reported serious adverse events determined to have been related to Dermagraft. Given the extensive time and cost typically required to obtain a PMA, we believe our PMA for Dermagraft provides a significant competitive advantage and establishes a
barrier to entry for potential competitors. We have also received a PMA from the FDA for TransCyte for the treatment of severe burns, although we have not yet commercialized TransCyte.

Established commercial infrastructure. Our commercial infrastructure consists of an in-house team of over 150 sales,
marketing, reimbursement and policy professionals with backgrounds in the pharmaceutical,

medical device and biotechnology industries. Our commercial team has been instrumental in beginning to establish living cell-based products as a new standard of care for the treatment of DFUs and
in demonstrating the clinical benefits of Dermagraft. In addition, our commercial team has facilitated extensive payor coverage for Dermagraft as a treatment for DFUs. We believe our ability to meet the challenges in building a commercial
organization around a regenerative medicine product, such as Dermagraft, has been critical to our success. We believe we can leverage these capabilities into future product opportunities or therapeutic applications, such as the potential use of
Dermagraft to treat VLUs.

Experience in scalable cell-based manufacturing. We have significant and
demonstrated experience in manufacturing living cell-based products, a complex process that requires development of a cell bank, extensive testing and validation, a customized manufacturing process, automation and process scale-up and significant
training and know-how. Several members of our manufacturing team have spent over 20 years developing and scaling the manufacturing processes for Dermagraft and TransCyte. We believe our manufacturing experience and know-how represent a barrier to
entry for potential competitors.

Revenue growth and profitability. We have grown our revenue
significantly since launching Dermagraft in 2007 while also achieving profitability. We grew our revenue from $8.6 million in 2007 to $146.7 million in 2010 and revenue was $44.2 million in the first quarter of 2011. We have become profitable due in
large part to our disciplined approach to deploying our financial resources, including selectively expanding our commercial team as well as making strategic research and development and capital expenditures. We generated income from operations of
$8.1 million, $21.0 million and $8.1 million in 2009, 2010 and the first quarter of 2011, respectively, which has allowed us to fund our internal growth initiatives. We expect to maintain this financial discipline as we execute our business
strategy.

Deep management experience in regenerative medicine.Our management team has an
average of over 20 years of experience in the pharmaceutical, biotechnology and medical device industries, including with regenerative medicine products. Our management team has remained largely unchanged since we acquired Dermagraft in 2006 and
launched the product in 2007. Additionally, several of the individuals involved in the over 15-year history of the research, development, manufacturing and reimbursement of Dermagraft continue to be part of our management team.

Our Strategy

We intend
to further our position as a leader in the field of regenerative medicine. The key elements of our business strategy are to:

Drive further adoption of Dermagraft for the treatment of DFUs in the United States. In less than four years, we have been
successful in obtaining an approximately 5% share of the addressable U.S. market opportunity for DFUs. We believe the market remains highly under-penetrated, and we intend to increase our market share by increasing sales to our existing customers
and expanding our overall customer base. We believe that the relatively concentrated nature of the hospital-based wound care centers, physician offices, surgery centers and government hospitals that we target and our ability to leverage and grow our
existing commercial infrastructure will facilitate our goal of increasing our market penetration.

Obtain FDA approval
and launch Dermagraft for the treatment of VLUs in the United States.We are conducting a pivotal trial evaluating Dermagraft for the treatment of VLUs, and we completed enrollment for this trial in November 2010. We intend to pursue
the completion of this clinical trial and, if successful, anticipate submitting a supplement to our existing PMA to the FDA in the first quarter of 2012. In the United States, VLUs affect approximately three million people per year and it is
estimated that annual treatment costs when using conventional therapy for VLUs are approximately $3 billion. We believe we are well positioned to leverage our existing infrastructure to commercialize Dermagraft for the treatment of VLUs.

Commercialize Dermagraft internationally.We believe the addressable
patient population for treating DFUs and VLUs outside the United States is significantly larger than the addressable patient population in the United States. To date, we have successfully gained international marketing approval for Dermagraft for
the treatment of DFUs in South Africa, Israel and Singapore. If we successfully complete our VLU clinical trial and related one-year follow-on study, we intend to file a marketing authorization application with the European Medicines Agency for a
VLU indication in 2013. If successful, this approval would grant us marketing rights in 30 European countries.

Invest
in manufacturing and research and development. We continue to invest in improvements to our manufacturing and quality assurance processes and systems. We also intend to expand our manufacturing capacity, most significantly through the
anticipated construction of a second manufacturing facility. In addition, we plan to continue to invest in research and development in order to expand our product portfolio. These efforts include executing our VLU clinical trial and evaluating the
use of our products in new therapeutic applications.

Broaden our product portfolio through internal and external
development initiatives. We may selectively in-license or acquire complementary products and technologies that will allow us to leverage our commercialization and manufacturing experience. In addition, we are evaluating opportunities to
commercialize TransCyte, which has received a PMA from the FDA for the treatment of severe burns, through arrangements with state, federal or international government agencies.

Our Products

Dermagraft

Dermagraft is a regenerative bio-engineered skin substitute made up of human fibroblast cells derived from newborn foreskin tissue and a
bioabsorbable mesh scaffold, with a full complement of growth factors and matrix proteins. Dermagraft aids the development of replacement dermal tissue, while simultaneously becoming incorporated into the patients dermal layer. When Dermagraft
is placed on the DFU, its mesh material is gradually absorbed and the human cells grow and replace the damaged skin. The living cells in Dermagraft produce many of the same growth factors and proteins found in healthy skin, which help replace and
rebuild the damaged tissue in the DFU.

Treatment of DFUs

Dermagraft is indicated for use in the treatment of full-thickness DFUs with greater than six weeks duration, which extend through the
dermis, but without tendon, muscle, joint capsule or bone exposure. Dermagraft is used in conjunction with conventional therapy and in patients who have adequate blood supply to the injured foot.

Dermagraft was approved in 2001 as a Class III medical device for the treatment of DFUs based on the results of a
large pivotal clinical trial. The trial was a prospective, randomized, controlled trial that enrolled 314 patients to evaluate the safety and efficacy of treatment with Dermagraft in conjunction with conventional therapy compared to a control arm of
conventional therapy alone. Conventional therapy involved the sharp debridement and cleaning of the ulcer, application of a wet-to-dry gauze and the use of therapeutic, pressure-reducing footwear. Patients were eligible to be screened for the trial
if they had a plantar DFU on the heel or forefoot that was greater than 1cm2 and less than 20cm2. At the screening visit, the patients began receiving conventional therapy. If the DFU had not decreased in size by more than 50% during the next two weeks and the patient met all other inclusion and
exclusion criteria, the patient was randomized into one of two treatment groups: Dermagraft plus conventional therapy or conventional therapy alone. Patients in the Dermagraft group received a weekly application of Dermagraft and conventional
therapy for up to eight weeks. The primary endpoint for the trial was superiority in complete DFU closure by 12 weeks.

In our
pivotal clinical trial, the weekly application of Dermagraft and conventional therapy for up to eight weeks increased the proportion of DFUs that achieved 100% closure at 12 weeks by 64%, when compared

to the use of conventional therapy alone. Patients treated in the Dermagraft group were 1.7 times more likely to achieve 100% closure than patients receiving conventional therapy alone.
These results demonstrated statistically significant improvements. In addition, Dermagraft was safe and well-tolerated. The incidence of adverse events among the Dermagraft and control groups were generally consistent across both groups, with the
most common adverse events being infection at the DFU site, infection not at the DFU site, accidental injury and skin dysfunction/blister. However, the percentage of patients who developed an infection at the DFU site was significantly lower in the
Dermagraft treatment group as compared with the control group, 10.4% versus 19.9%, respectively. No adverse laboratory findings were associated with the use of Dermagraft and no adverse device effects were reported in the trial. In addition, no
immunological responses or rejections from patients that received Dermagraft were reported in this trial or in patients treated to date.

Treatment of VLUs

VLUs affect approximately three million people per year
in the United States. Chronic venous insufficiency, varicose veins and chronic venous hypertension of the lower extremities are believed to play major roles in the development of VLUs. These conditions result in reduced blood flow in the legs and an
increase in pooling blood and pressure in the veins and capillaries. This increased pressure causes fluid to leak into surrounding tissue. Swelling caused by leaking fluid interferes with the movement of oxygen and nutrients from capillaries,
causing damage to the tissue and resulting in the formation of VLUs. VLUs can result in a reduction in the patients quality of life due to a significant degree of site pain, social stigma due to smell of the ulcer and reduced mobility. It is
estimated that annual treatment costs when using conventional therapy for VLUs are approximately $3 billion in the United States.

Similar to DFUs, conventional therapy for VLUs consists of debriding and cleaning the ulcer and applying a compression dressing. Patients also wear elastic compression stockings to control ambulatory
venous pressure and edema and to improve venous flow. Studies have shown that a recurrence of VLUs can occur in up to 70% of patients and is associated with significant disability and costs. Conventional therapy is often inadequate, generally
requiring physicians to consider more costly and invasive alternatives, such as surgical intervention or skin grafting.

We
are currently conducting a pivotal trial for the use of Dermagraft in the treatment of VLUs, using the same product used to treat DFUs. We have named the on-going pivotal trial DEVODermagraft Efficacy in Venous Leg Ulcer Outcomes. This trial
was initiated in 2009 and, in November 2010, we completed enrollment of the 500 patients required by the trial protocol. The trial is a randomized, controlled trial comparing conventional therapy, Profore compression dressing, versus Profore
compression dressing in conjunction with Dermagraft. Key inclusion criteria for the trial included:



ulcer duration of not less than two months nor longer than two years;



ulcer size between 2 and 15 cm2;



maximum change in the size of the VLU during a two-week screening process of not more than 40%;



patients having a body mass index of not more than 40;



patients having a hemoglobin A1c, which is a measure of average blood sugar levels over a period of time, of less than or equal to 8.5; and



the ulcer not having decreased in size by 50% or more after two weeks of continued conventional therapy alone.

If these criteria were met, then the patient was randomized to either the Dermagraft
treatment group or the Profore control treatment group. The ulcers were treated similarly in both study groups except for the administration of Dermagraft. Patients in the Dermagraft group received up to eight weeks of active treatment, and in some
cases, up to an additional eight weeks of treatment with Profore compression dressing alone, followed by 20 additional weeks of medical observation. The primary end point of the study is 100% VLU closure at 16 weeks after initiation of treatment. We
expect to report the results from this trial in the fourth quarter of 2011. Assuming the trial is successful, demonstrating a significant benefit due to Dermagraft treatment over conventional therapy, we anticipate submitting a supplement for the
VLU indication to our existing PMA in the first quarter of 2012.

International Opportunity

We plan to focus our initial international commercialization efforts in the European Union, although we do not currently have E.U.
approval for Dermagraft in any indication. While we are still finalizing our detailed regulatory pathway in Europe, we anticipate using the data generated in our VLU clinical trial to seek approval for the use of Dermagraft to treat this indication
in the European Union. In addition to the current 500-patient clinical trial, to meet the European Medicines Agency requirements for longer term follow-up, we are conducting a follow-on study in which approximately 200 patients from the current VLU
clinical trial will be monitored and some of which will continue treatment for up to an additional year. During this additional year, it will be determined whether there are any safety or other issues in patients whose VLUs were previously healed
and whether patients who were not previously healed with conventional therapy alone are healed following an additional year of treatment. We anticipate completing this study in 2012 and subsequently submitting the data to the European Medicines
Agency for a marketing authorization application in 2013 through the central approval process. If we are successful in obtaining central approval for the Dermagraft VLU indication in the European Union, we believe that such approval may facilitate
our ability to obtain supplemental approval to treat DFUs in Europe.

In addition to the European opportunity, we are
currently exploring strategies for expansion into Asia, Canada and India. We have obtained approval for Dermagraft for the treatment of DFUs in South Africa, Israel and Singapore, and are exploring commercialization opportunities in these countries.

Manufacturing Process

The complex, proprietary cell-based techniques that we use to manufacture Dermagraft were developed over a 20-year period and required significant capital investment by us and our predecessors. We
specially train all of our manufacturing employees to manufacture Dermagraft throughout an initial six-month process due to the unique nature and complexity of the Dermagraft manufacturing process. We plan to continue to make a substantial
investment in improvements to our manufacturing and quality assurance processes and systems.

Dermagraft is grown from a
master cell bank that was procured from a single neonatal foreskin sourced in 1990. The cell line has been qualified by the FDA and we have performed extensive testing to help ensure the safety of the fibroblast cells in the master cell bank. The
cell bank is cryopreserved and from time to time, we remove cells from the master cell bank and create a cryopreserved working cell bank. We then remove and incubate cells from the working cell bank and use a Cellmate Robotic Culture System for
seeding, feeding and expanding the number of, or reproducing, cells. The system is designed to provide lot-to-lot consistency and to reduce the risk of contamination.

We manufacture Dermagraft in a proprietary closed bioreactor system under aseptic conditions. Each bioreactor contains pieces of bioabsorbable mesh, each sealed in a clear, polyvinyl bag. During the
manufacturing process, the cells are seeded onto the manifold. We pump cells simultaneously into the system until the cells have filled the entire manifold with cell seeding solution. We rotate manifolds to ensure even distribution of the cell
inoculum across the entire surface of the mesh. Manifolds are then placed in an incubator, with tightly controlled temperature and carbon dioxide. We exchange media in the system at regular intervals and monitor glucose consumption throughout the
process to assess cell growth during the creation of a

three-dimensional cellular matrix. The aggregate time to manufacture Dermagraft is approximately seven weeks from the time that we remove cells from the working cell bank.

We package Dermagraft units for single-use application in a foil pouch and a cardboard box for labeling in which they are then
cryopreserved and stored. Once frozen, Dermagraft has a six-month shelf life. Prior to shipment, Dermagraft undergoes a testing and validation process to ensure product viability, safety and quality, which takes approximately five weeks.

We ship Dermagraft frozen, on dry ice, in specially validated and designed shipping containers that help ensure that the product remains
frozen for up to four days during the shipping process. Prior to implantation, the administering specialist must thaw, rinse and, if necessary, cut the product to size. We ship product from our La Jolla, California facility using third-party
carriers that are experienced in cold-chain logistics. Following receipt, customers can return and recycle the shipping containers at no cost to the customer.

Manufacturing Process

TransCyte

TransCyte is a skin replacement product indicated for the treatment of mid-dermal to indeterminate depth, partial-thickness, thermal burn wounds, and is also indicated as a temporary covering for
surgically excised full-thickness, third degree and deep partial-thickness, second degree, burns in patients who require such a covering prior to autograft placement, which we collectively refer to as severe burns. TransCyte consists of a polymer
membrane and neonatal human cells from the same cell line that we use to manufacture Dermagraft. When applied, this membrane provides a transparent synthetic epidermis that acts as an allogeneic skin replacement for the treatment of severe burns.
TransCyte provides a safer and more effective alternative to cadaver skin, which is the current standard of care for these types of burns. TransCyte received a PMA from the FDA for the treatment of severe burns in 1997.

To date we have focused our resources on the commercialization of Dermagraft for the treatment of DFUs and do not currently manufacture
or market TransCyte in any territory. We have engaged in discussions regarding potential arrangements with state, federal or international government agencies. Based on the results of these discussions, we may determine that such an arrangement
could justify the commercialization of TransCyte.

Manufacturing Facility

We manufacture Dermagraft in a state-of-the-art manufacturing facility located in La Jolla, California. Our facility is FDA-registered,
designed to comply with FDA current good manufacturing practice regulations for medical devices, known as the Quality System Regulation, and is ISO 13485 (2003) registered. Several members of our manufacturing team have over 20 years of
experience manufacturing cell-based products and created the original protocols for manufacturing Dermagraft and TransCyte.

Within the manufacturing facility is a 15,000 square foot Class 10,000 clean room where we
perform all manufacturing operations aseptically inside Class 100 Laminar Flow Work Stations. Adjacent to the clean room are controlled receiving, packaging and storage areas.

Our La Jolla facility has a yearly capacity in excess of 300,000 units of Dermagraft and currently employs over 50 people working solely on the manufacturing process. We believe our current facility has
sufficient capacity to meet our near-term needs. We currently operate one manufacturing shift per day, seven days per week. We intend to expand our manufacturing capacity, most significantly through the anticipated construction of a second
manufacturing facility. We also continue to invest in improvements to our manufacturing and quality assurance processes and systems.

Commercial Infrastructure

Our in-house commercial team consists of over 150 individuals with extensive experience in the pharmaceutical, biotechnology or medical device industries and is comprised of a direct sales team, a
marketing organization and a team of reimbursement specialists and policy professionals. We have focused on establishing a highly-integrated organization that is responsible for expanding the market for Dermagraft. We expect to leverage our existing
infrastructure to commercialize Dermagraft for the treatment of VLUs, if it receives FDA approval for that indication.

Sales

Our direct sales team consists of more than 100 professionals who are trained in the clinical benefits of Dermagraft
and targets hospital-based wound care centers, physician offices, surgery centers and government hospitals. Combined, there are over 2,500 identified potential customers in the United States. We intend to increase our DFU market share by increasing
sales to our existing customers and expanding our overall customer base.

We are not dependent on any single customer for a
material portion of our revenue. Our sales model involves multiple points of contact at each customer, and we believe that it is fully scalable as we continue to increase the number of sales representatives and penetration within each customer.

In the event that we commercialize TransCyte, we expect to focus upon arrangements with state, federal or international
government agencies as our customers and therefore do not expect that we would need to employ a separate direct sales force specifically for the commercialization of TransCyte.

Marketing

We believe one of the keys to our commercial success has
been our ability to begin establishing a new standard of care among healthcare providers for the treatment of DFUs. Since launching Dermagraft in 2007, our marketing and strategy group has:



increased awareness of the significant prevalence, cost, morbidity and mortality associated with DFUs;



developed tools, such as community outreach and educational materials, to improve physician and patient understanding and focus on the adverse health
consequences of delayed healing of DFUs and emphasize the importance of patients and physicians taking a more proactive role in healing;



increased the awareness of the importance of outcomes-based care management, which involves consistent monitoring of the healing process, and the
constant reevaluation of treatment modality to assure the most effective treatment is being utilized; and

articulated and presented the rationale and body of clinical evidence that supports using Dermagraft earlier in the treatment process for patients who
have not demonstrated adequate healing.

We have accomplished this through the use of direct marketing efforts targeted to
both physicians and patients, as well as symposia, workshops and sponsored presentations.

In an effort to drive adoption of
Dermagraft earlier in the treatment process, in 2009 we launched our Standard of Care campaign. This campaign focuses on healthcare providers and highlights scientific data showing that if a DFU has not closed by 50% within the first
four weeks of treatment with conventional therapy, there is only a 9% chance the DFU will reach full closure using conventional therapy alone, resulting in numerous negative outcomes for the patient. We believe this information allows us to educate
physicians on the benefits of initiating Dermagraft early in the treatment process after initial treatment with conventional therapy alone. In addition, we believe this effort has helped create the market for Dermagraft by demonstrating that
conventional therapy alone is generally insufficient to achieve full DFU closure and that a new standard of acceptable clinical outcome is needed.

In addition to focusing on healthcare provider education, in 2008 we launched a patient education campaign branded as Heal2gether, or H2G. The H2G program utilizes community outreach events, a phone
support program and social media to establish and educate patients in the following four key areas:



Awareness. DFU patients often underestimate how serious the complications can be if a DFU is left untreated.



Action. H2G empowers patients to understand there are treatment options available to them if they are willing to take action.



Access. Many patients in our research exhibited a feeling of helplessness because they commonly felt they did not have access to treatment
options other than what they were currently following. As a result, we decided to provide patients with the tools and education to understand where and how they can access advanced options.



Adherence. Once a patient enters a more effective treatment program, one of the major issues identified by physicians is the common lack of
adherence to those treatment regimens that will most likely lead to DFU closure. The adherence portion of H2G was designed to help address this need.

Reimbursement

Since launching Dermagraft for the treatment of DFUs
in 2007, we have invested significant resources into facilitating the adoption of appropriate coding, coverage and reimbursement for our product. Currently, Dermagraft has coding specific to the product and has coding for its application, and there
is extensive coverage with both public and private payors. Up to eight weekly applications of Dermagraft are currently covered for reimbursement by Medicare and most private payors.

Although Dermagraft is regulated in the United States by the FDA as a Class III medical device, it is treated under Medicare Part B by
CMS as a biologic. Under Medicare Part B, in the outpatient hospital, ambulatory surgery center and physician office settings, Part B biologics used as skin substitutes are reimbursed separately by CMS because they cannot be self administered by the
patient and must instead be administered by a physician. In addition, CMS currently assigns Dermagraft a K status indicator under the Hospital Outpatient Prospective Payment System, which indicates items paid separately as a
drug/biologic under such payment system currently using an average sales price methodology.

Effective as of January 1,
2011, CMS assigned new temporary procedure codes for physicians to bill the application of skin substitutes, including Dermagraft. These new codes only affect payments to physicians for applying such skin substitutes and not separate reimbursement
of Part B biologics. These new codes are associated with lower payment amounts in 2011 for physician services only and do not, however, affect

payments to the outpatient hospital or ambulatory surgery center settings. In its final Medicare Physician Fee Schedule rule released in November 2010, CMS stated that it established these new
procedure codes for temporary use while stakeholders engage in discussions and attend a series of public hearings to establish permanent codes that reflect the common clinical scenarios in which all skin substitutes are applied. We have coordinated
and participated with the American Medical Association, numerous specialty societies, CMS and other manufacturers to establish such permanent codes. We cannot be certain that current coverage, coding and reimbursement policies of Medicare and other
third-party payors will continue or the extent to which future changes to coverage, coding and reimbursement policies will affect some or all of the procedures that would use Dermagraft.

Our reimbursement team consists of reimbursement specialists and policy professionals. Our reimbursement specialists work hand-in-hand
with our sales organization to help educate customers on the proper coding and coverage for Dermagraft. They have extensive experience and training in federal, state and private payor systems and strive to support our customers in all appropriate
aspects of Dermagraft reimbursement. Our reimbursement specialists are also supported by an insurance verification hotline that is currently operated on our behalf by a third-party provider. During 2011, we plan to bring this insurance verification
capability in-house. Our policy professionals work with federal, state and private payors so that the appropriate officials within these organizations have a thorough understanding of the Dermagraft clinical and safety data, in order to enable these
agencies to make educated decisions about appropriate coverage and payment.

Should the FDA approve Dermagraft for the
treatment of VLUs, we believe we can leverage existing coding, coverage and reimbursement for the use of regenerative medicine therapies to facilitate the reimbursement process for Dermagrafts VLU indication.

Research and Development

Our research and development efforts are focused on clinical development, including our VLU clinical trial, and scientific research to
enhance and support our manufacturing and quality assurance processes and the exploration of new indications for Dermagraft and new product opportunities. In 2009 and 2010, we spent approximately $7.7 million, or 9.1% of revenue, and approximately
$17.1 million, or 11.6% of revenue, respectively, on research and development. As of December 31, 2010, we had over 30 employees directly involved in our research and development efforts. We believe this level of research activity will continue
to place us at the forefront of regenerative medicine, while also raising the barrier to entry for other companies that may seek to establish cell-based products.

Competition

The medical device and biotechnology industries are
characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. Competition in the regenerative medicine industry is particularly intense, due largely to the fact that regenerative medicine
products currently compete with both traditional and advanced products, as well as bio-engineered products. We compete with these other products based on efficacy, price, reimbursement, ease of use and healthcare provider education.

Dermagraft for the treatment of DFUs competes against bio-engineered products, including other living cell products like Apligraf from
Organogenesis, Inc. and platelet-derived growth factor products like Regranex from Systagenix Wound Care Limited, with similar competitive features such as efficacy, price, reimbursement and ease of use. However, we believe Dermagrafts
six-month shelf life provides a competitive advantage over other living cell products because it allows our customers to more effectively manage inventory by allowing them to store our product in on-site freezers that we provide and utilize our
product when needed. We believe the existence of other regenerative medicine alternatives in the marketplace serves to raise awareness in the clinical and patient community of a new standard of care for DFUs, based in part on the extensive clinical
trial data supporting the efficacy of such products, and that this greater awareness will result in increased overall usage of regenerative medicine therapies for DFUs.

Dermagraft also competes against many manufacturers of traditional 510(k)-cleared wound
dressings, including Johnson & Johnson, Systagenix Wound Care Limited, Healthpoint, Ltd., ConvaTec Inc., Smith & Nephew plc, Mölnlycke Health Care and The Coloplast Group. In addition, Dermagraft competes against advanced
mechanical technologies, such as Vacuum-Assisted Closure therapy. Vacuum-Assisted Closure therapy uses a vacuum to remove excess fluid and cellular waste that create inflammation and hinder ulcer healing. Current competitors in the Vacuum-Assisted
Closure therapy space include Kinetic Concepts, Inc. and Smith & Nephew. While Dermagraft can be more expensive and time-consuming to apply than 510(k)-cleared wound dressings and advanced mechanical technologies, the efficacy of Dermagraft
and other bio-engineered products, is supported by extensive clinical trial data. It is unlikely that many 510(k)-cleared wound dressings have this extensive clinical trial data and have successfully completed randomized, controlled trials because
the FDA generally does not require such extensive clinical trial data for 510(k) clearance applications, as opposed to PMA applications, which require extensive clinical data.

We face competition from a number of sources that may target the same indications as our products, including pharmaceutical companies, biotechnology companies, academic institutions, government agencies
and private and public research institutions, many of which have greater financial resources, sales and marketing capabilities, manufacturing capabilities, experience in obtaining regulatory approvals for potential products and other resources than
us.

Third-Party Suppliers

While we manufacture Dermagraft exclusively at our La Jolla, California manufacturing facility, we utilize numerous third-party suppliers for the raw materials used in the manufacturing of Dermagraft.
These suppliers have been selected for their specific competencies in manufacturing such raw materials. We currently obtain some of the reagents that we use in the manufacture of Dermagraft from single suppliers in order to maximize
supplier/customer relations and maintain inventory continuity. Other than our agreement with HyClone Laboratories to supply us with one of the types of serum reagents we use in the manufacture of Dermagraft, we currently do not have any long-term
supply agreements with any suppliers for these reagents, who to date have supplied us with such reagents under short-term purchase orders or similar arrangements. As part of our manufacturing improvement efforts, we seek to identify and qualify
additional suppliers of the raw materials used to manufacture Dermagraft, and we have identified alternate sources of supply for certain key reagents. We do not believe that losing any individual supplier of a reagent with which we do not have a
long-term agreement would impair our ability to produce Dermagraft because we do not believe that we would need prior FDA approval to use an alternate supplier of any such reagent. However, if approval was required for any alternate supplier of
these reagents, it could take several months or years to obtain, if at all.

We currently obtain the mesh framework that we
use in the manufacture of Dermagraft solely from Ethicon, Inc., a subsidiary of Johnson & Johnson, pursuant to a supply agreement we originally entered into with Ethicon in November 2006 and subsequently amended. The initial term of the
agreement expires in December 2012. The term of the agreement may be extended for two successive one-year periods upon mutual written agreement of the parties. Either party may terminate the agreement for convenience upon six months prior
written notice. However, Ethicon is required to provide us with a specified bulk order of the mesh product should the agreement be terminated. In addition, Ethicon is required to provide us with two months prior written notice of any changes
to be made to the composition, construction or properties of the mesh product or of Ethicons intention to discontinue the manufacture and supply of the product, in which case Ethicon is also required to provide us with the specified bulk order
of the product.

We currently source the manifolds that we use in seeding and production of Dermagraft solely from
Flextronics Medical Sales and Marketing, Ltd., or Flextronics, pursuant to a manufacturing services agreement that has an initial term that expires in June 2015. The term of the agreement will automatically extend for successive one-year periods,
unless either party gives written notice at least 90 days before the end of the term that it does not wish to extend the agreement. Either party may terminate the agreement for convenience upon

12 months prior written notice. In addition, either party may terminate the agreement upon written notice if the other party commits a material breach of its obligations and fails to
remedy the breach within a specified time period or if a force majeure event continues for 90 days.

We currently purchase one
of the types of serum reagents that we use in the manufacture of Dermagraft solely from HyClone Laboratories pursuant to a supply agreement that we entered into in January 2007 under which we also purchase certain other raw materials, such as media,
bioprocess containers and bags, used in the manufacture of Dermagraft. The initial term of the agreement expired in January 2009. Thereafter, the term of the agreement has continued, and will continue, to automatically extend for successive two-year
periods, unless either party gives written notice at any time prior to the expiration of the then existing term that it does not wish to extend the agreement. Either party may terminate the agreement upon written notice if the other party commits a
material breach of its obligations and fails to remedy the breach within a specified time period. In addition, HyClone Laboratories is required to give at least 12 months prior written notice if it elects to withdraw from the business of
manufacturing the serum, in which case HyClone Laboratories must provide us with a specified bulk order of the serum and thereafter the agreement would terminate with respect to the serum.

Government Regulation

FDA Regulation

Our products and operations are subject to regulation by the FDA and other federal and state authorities, as well as comparable
authorities in foreign jurisdictions, which are discussed below. The FDA regulates the development, design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing, recordkeeping,
premarket clearance or approval, adverse event reporting, advertising, promotion, marketing and distribution of medical devices in the United States to ensure that medical devices distributed domestically are safe and effective for their intended
uses and otherwise meet the requirements of the Federal Food, Drug, and Cosmetic Act. Medical device manufacturers are also inspected regularly by the FDA. In addition, the FDA regulates the import of components used in the manufacture of medical
devices in the United States and the export of medical devices manufactured in the United States to international markets. Failure to comply with applicable regulatory requirements may subject us to a variety of administrative or judicially imposed
penalties or sanctions and/or prevent us from obtaining or maintaining required approvals or clearances to manufacture and market our products. Such failure to comply with the applicable FDA requirements may subject us to stringent administrative or
judicial actions or sanctions, such as agency refusal to approve pending applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution of products, injunctions, or civil or criminal
prosecution.

Under the Federal Food, Drug, and Cosmetic Act, medical devices are classified into one of three
classesClass I, Class II or Class IIIdepending on the degree of risk associated with each medical device and the extent of manufacturer and regulator control needed to ensure safe and effective use. Classification of a device is
important because the class to which a device is assigned determines, among other things, the type of application process required for FDA review and clearance or approval to market the device. Class I includes devices with the lowest risk to the
patient, and is subject to the least regulatory control, while Class III includes devices that pose the greatest risk to the patient, and is subject to the strictest regulatory control.

The preponderance of our business involves products in Class III.

Class I and Class II Devices

Class I devices are considered low risk devices subject to the least regulatory control. In general, a company can market a Class I device without pre-market clearance by the FDA as long as it adheres to
FDA General Controls. Class II devices are medium-risk devices subject to greater regulatory control than Class I devices. Most Class II devices are required to obtain FDA clearance under Section 510(k) of the Federal Food, Drug, and Cosmetic
Act, known as premarket notification, before they can be marketed. When compliance with Section 510(k) is required, an applicant must submit to the FDA a premarket notification submission demonstrating

that the device is substantially equivalent to a predicate device already on the market. A predicate device is either a device that was legally marketed prior to May 28, 1976,
the date upon which the Medical Device Amendments of 1976 were enacted, for which the FDA has not yet called for the submission of a PMA or another commercially available, or a similar device that was subsequently cleared through the 510(k) process.

If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will grant
clearance to commercially market the device. If the FDA determines that the device, or its intended use, is not substantially equivalent to a previously cleared device or use, the device, or the particular use of the device, is
automatically designated as a Class III device. The device sponsor must then fulfill more rigorous premarket approval requirements, or petition to down-classify the device to Class II under the process known as de novo or
risk-based classification review. Moreover, in January 2011 the FDA announced a series of specific action items it intends to take during 2011 concerning its 510(k) program. The FDA issued its recommendations and proposed action items in
response to concerns from both within and outside of the FDA about the 510(k) program. Some of these actions may result in additional or new regulatory requirements that could increase the costs or time for manufacturers seeking marketing clearances
through the 510(k) process.

Class III Devices

Class III devices are higher-risk devices such as those which support or sustain life or are used invasively in the body or are deemed
not substantially equivalent to a previously cleared 510(k) device or device in commercial distribution before May 28, 1976 for which a PMA has not been required. Class III devices are subject to the greatest amount of regulatory control. In
general, a Class III device cannot be marketed unless the FDA approves the device after submission of a PMA. The PMA process is more demanding than the 510(k) premarket notification process. A PMA, which is intended to demonstrate that the device is
safe and effective, must be supported by extensive data, including data from preclinical studies and human clinical trials. The PMA must also contain a full description of the device and its components, a full description of the methods, facilities
and controls used for manufacturing, and proposed labeling. Following receipt of a PMA, once the FDA determines that the application is sufficiently complete to permit a substantive review, the FDA will accept the application for agency review. The
FDA, by statute and by regulation, has 180 days to review a PMA, although the FDA review of an application more often occurs over a significantly longer period of time, and can take up to several years.

As part of its PMA review, the FDA will typically inspect the manufacturers facilities and may inspect one or more clinical site
where the supporting clinical study was conducted. The facility inspection evaluates the manufacturers compliance with the Quality System Regulation, which governs design development, testing, control, documentation and other aspects of
quality assurance with respect to the design and manufacturing process. An inspection of clinical sites evaluates the performance of the clinical studies for compliance with Investigational Device Exemption, or IDE, requirements described below.
During the review period, an FDA advisory committee, typically a panel of clinicians, may be convened to review aspects of the application and recommend to the FDA whether the device is considered safe and effective for its intended use(s) and
comment on the devices risk versus its benefit. The FDA is not bound by the advisory panel recommendations; it may follow some of them, all of them, or none of them when the FDA makes its application decision.

The FDA will approve the new device for commercial distribution if it determines that the data and information in the PMA constitute
valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s). The FDA may approve a PMA with postapproval conditions intended to ensure the safety and effectiveness of the device,
including, among other things, restrictions on labeling, promotion, sale and distribution, collection of long-term follow-up data from patients in the clinical study that supported PMA approval or requirements to do additional clinical studies
post-approval. The FDA may condition PMA approval on some form of post-market surveillance when deemed necessary to protect the public health or to provide additional safety and efficacy data for the device in a larger population or for a longer
period of use. In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions of
approval can result in material adverse enforcement action, including the loss or withdrawal of the approval.

Class III devices may also be marketed under a Humanitarian Device Exemption, or HDE, for a
device intended to benefit smaller patient populations. Such a designation can eliminate the need to file a full PMA supported by human clinical safety and efficacy trials. This is a two-step process. First one must request a Humanitarian Use
Device, or HUD, designation for a medical device. The applicant requests the designation for treatment of a rare disease or condition, or a medically plausible subset of a disease or condition. The applicant must demonstrate that the disease or
condition involves fewer that 4,000 diagnosed individual cases in the United States per year. Within 45 days, the FDA must either approve or reject the request for designation. Once a HUD designation is approved, the sponsor must apply for the HDE.
The applicant must show that the device would not be available unless the HDE were granted and that no comparable device, except another HUD, is available to treat the disease or condition. The FDA may request additional clinical or other testing
before approving or rejecting the application. Once the HUD device is available for marketing under an HDE, the amount charged for the device cannot exceed the costs of the devices research, development, fabrication and distribution.

The FDA may revoke a HUD designation if circumstances change. For example, the FDA may revoke the HDE if the number of
cases is shown to exceed 4,000 per year, another device becomes commercially available, or the disease or condition is no longer considered a medically plausible subset or indication.

Clinical Trials

One or more clinical trial is almost always required to support a PMA and is sometimes required to support a 510(k) submission. Clinical studies of unapproved or uncleared medical devices or devices being
studied for uses for which they are not approved or cleared (investigational devices) must be conducted in compliance with FDA regulations. If an investigational device could pose a significant risk to patients or is intended to collect safety or
effectiveness information to support a marketing application, the sponsor company must submit an IDE application to the FDA prior to initiation of the clinical study. An IDE application must be supported by appropriate data, such as animal and
laboratory test results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE will automatically become effective 30 days after receipt by the FDA unless the FDA notifies the company
that the investigation may not begin. If the FDA determines that there are deficiencies or other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval. Typically, a
company may proceed with the investigation under a conditionally approved IDE, subject to meeting any conditions or modifications identified by the FDA in granting the conditional approval. We are currently conducting our VLU clinical trial pursuant
to an IDE application, which the FDA conditionally approved in April 2009. The FDA has conditionally approved our IDE based on a requirement that we modify certain analyses of the study data that we intend to conduct. For example, the FDA has
requested that we include interaction tests as well as methods for comparing baseline criteria for our pooling analyses. Additionally, the FDA has requested that we conduct any exploratory secondary analyses only after our primary endpoint analyses
are determined to be statistically significant. We intend to meet and follow these conditions of approval of our IDE.

In
addition, the study must be approved by an Institutional Review Board, or IRB, for each clinical site. The IRB is responsible for the initial and continuing review of the IDE, and may pose additional requirements for the conduct of the study. If an
IDE application is approved by the FDA and one or more IRBs, human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device presents a non-significant risk to
the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval from the FDA, but must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring
that the investigators obtain informed consent as well as follow labeling and record-keeping requirements. Acceptance of an IDE application does not give assurance that the FDA will approve the IDE and, if it is approved, the FDA may determine that
the data derived from the trials support the safety and effectiveness of the device, warrant the continuation of clinical trials, or do not support the safety and effectiveness of the device. An IDE supplement must be submitted to, and approved by,
the FDA before a sponsor or investigator may make a change to the investigational plan that may affect its scientific soundness, study indication or the rights, safety or welfare of human subjects.

During a study, the sponsor is required to comply with the FDAs IDE requirements,
including, for example, trial monitoring, selecting clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping and prohibitions on the promotion of investigational devices or
making safety or efficacy claims for them. The clinical investigators in the clinical study are also subject to FDAs clinical trial regulations and must obtain patient informed consent, rigorously follow the investigational plan and study
protocol, control the disposition of the investigational device, and comply with all reporting and record keeping requirements. Additionally, after a trial begins, the FDA or the IRB may withdraw its respective approval of the IDE application if,
among other reasons, it concludes that clinical subjects are exposed to an unacceptable health risk. There can be no assurance that the data generated during a clinical study will meet the safety and effectiveness endpoints or otherwise produce
results that will lead the FDA to grant marketing clearance or approval.

While we are currently conducting our VLU clinical
trial pursuant to an IDE application, it is possible that further developments in the FDAs approval process or policies regarding tissue engineered products may result in the agency determining to review Dermagraft for the treatment of VLUs or
other potential indications as a biological product. Such a determination would require us to submit a Biologics License Application, or BLA, rather than a PMA supplement, and may subject us to additional data requirements and conditions of
approval. Like the PMA process, the FDA must review and approve a BLA before the biologic may be legally marketed in the United States. Similar to the clinical data necessary to support a PMA, in order to be approved, a BLA must demonstrate the
safety and efficacy of the product candidate based on results of preclinical studies and clinical trials. However, clinical trials to support a BLA typically progress through three phases of clinical trials. A BLA must also contain extensive
manufacturing information, and the applicant must pass an FDA pre-approval inspection or review of the manufacturing facility or facilities at which, or operations by which, the drug or biologic is produced to assess compliance with the FDAs
current good manufacturing practice prior to commercialization. Satisfaction of FDA approval requirements for biologics typically takes several years and the actual time required may vary substantially based on the type, complexity and novelty of
the product, and we cannot be certain that any approvals for our products will be granted on a timely basis, or at all.

Post-market Regulation

After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply. These include:



establishment registration and device listing with the FDA;



Quality System Regulation requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control,
documentation and other quality assurance procedures during all aspects of the manufacturing process;



labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label uses, and other
requirements related to promotional activities;



medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a
death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur;



correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or
removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the Federal Food, Drug, and Cosmetic Act that may present a risk to health; and

post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide
additional safety and effectiveness data for the device.

Our manufacturing processes are required to comply
with the applicable portions of the Quality System Regulation, which cover the methods and the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution,
installation and servicing of finished devices intended for human use. The Quality System Regulation also, among other things, requires maintenance of a device master file, device history file, and complaint files. Our manufacturing facility is
subject to periodic scheduled or unscheduled inspections by the FDA. Based on internal audits and FDA inspections, we believe that our facility is in substantial compliance with the applicable requirements of the Quality System Regulation. The
discovery of previously unknown problems with any of our products, including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the device within the scope of its clearance or
off-label by a physician in the practice of medicine, could result in restrictions on the device, including the withdrawal of the product from the market or voluntary or mandatory device recalls. The FDA and authorities in other regions, such as the
European Union, can require the recall of device products, or we can voluntary recall a product, in the event of material defects or deficiencies in design or manufacturing. The FDA can also suspend or withdraw our product approvals in the event it
determines that continued distribution would cause serious, adverse health consequences, death or serious or unanticipated safety or effectiveness concerns.

Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the design performance specifications, that affect the safety or
effectiveness of the device, require a PMA supplement. Certain changes to an approved device require the submission of a new PMA, such as when the design change causes a different intended use, mode of operation, and technical basis of operation, or
when the design change is so significant that a new generation of the device will be developed. For 510(k)-cleared devices, modifications that could significantly affect the safety or effectiveness of the device require a new 510(k) submission.
Although we have no current plans to modify our currently approved products, to the extent we seek to change or modify such products in the future, we cannot assure you that we will be successful in receiving approvals, or that the FDA will agree
with our decisions to seek or not to seek approvals, supplements or clearances for any such device changes or modifications. The FDA may require approval or clearances for past or any future modifications or new indications for our existing
products. Such submissions may require the submission of additional clinical or preclinical data and may be time consuming and costly, and may not ultimately be cleared or approved by the FDA in a timely manner or at all.

The FDA has broad regulatory compliance and enforcement powers. If the FDA determines that we failed to comply with applicable regulatory
requirements, it can take a variety of compliance or enforcement actions, such as issuing a FDA Form 483 notice of inspectional observations, warning letter, or untitled letter, imposing civil money penalties, suspending or delaying issuance of
approvals, requiring product recall, imposing a total or partial shutdown of production, withdrawal of approvals or clearances already granted, and pursuing product seizures, consent decrees or other injunctive relief, and criminal prosecution
through the Department of Justice. The FDA can also require us to repair, replace or refund the cost of devices that we manufactured or distributed. If any of these events were to occur, it could materially adversely affect our business.

There are restrictions under U.S. law on the export from the United States of medical devices that cannot be legally distributed in the
United States. If a Class I or Class II device does not have 510(k) clearance, and the manufacturer reasonably believes that the device could obtain 510(k) clearance in the United States, then the device can be exported to a foreign country for
commercial marketing without the submission of any type of export request or prior FDA approval, if it satisfies certain limited criteria relating primarily to specifications of the foreign purchaser and compliance with the laws of the country to
which it is being exported, known as Importing Country Criteria. An unapproved Class III device can be exported if it complies with the criteria discussed above for a 510(k) device and the device has a marketing authorization in one of a list of
countries listed in the Federal Food, Drug, and Cosmetic Act. If an unapproved Class II device is not cleared for marketing in one of the listed countries, a license from the FDA is required in order to export it.

U.S. Anti-kickback, False Claims and Other Healthcare Fraud and Abuse Laws

In the United States, there are federal and state anti-kickback laws that prohibit the payment or receipt of kickbacks,
bribes or other remuneration intended to induce the purchase or recommendation of healthcare products and services. Violations of these laws can lead to civil and criminal penalties, including exclusion from participation in federal healthcare
programs. These laws apply to manufacturers of products, such as us, with respect to our financial relationship with hospitals, physicians and other potential purchasers or acquirers of our products. The U.S. government has published regulations
that identify safe harbors (such as the safe harbor for discounts in connection with product sales) or exemptions for certain practices from enforcement actions under the federal anti-kickback statute, and we seek to comply with the safe
harbors where possible. Arrangements that do not meet a safe harbor are not necessarily illegal, but rather must be evaluated on their facts. Other provisions of state and federal law provide civil and criminal penalties for presenting, or causing
to be presented, to third-party payers for reimbursement, claims that are false or fraudulent, or which are for items or services that were not provided as claimed. False claims allegations under federal and some state laws may be brought on behalf
of the government by private whistleblowers, who then receive a share of any recovery. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability
Reconciliation Act. A number of provisions of this Act reflect increased focus on and funding of healthcare fraud enforcement. Although our business is structured to comply with these and other applicable laws, it is possible that some of our
business practices in the future could be subject to scrutiny and challenge by federal or state enforcement officials under these laws. This type of challenge could have a material adverse effect on our business, financial condition and results of
operations.

European Economic Area Regulation

If we successfully complete our VLU clinical trial and related one-year follow-on study, we intend to file a marketing authorization application for a VLU indication with the European Medicines Agency
through the central approval process in 2013. If we are successful in obtaining central approval for the Dermagraft VLU indication in the European Union, we believe that such approval may facilitate our ability to obtain supplemental approval to
treat DFUs in Europe. In the European Economic Area, which is composed of the 27 Member States of the European Union as well as Norway, Iceland and Liechtenstein, our products are classified as tissue engineered products, which together with gene
therapies and somatic cell therapies, are Advanced Therapy Medicinal Products falling under the scope of Regulation (EC) No 1394/2007 on Advanced Therapy Medicinal Products, or the Advanced Therapies Regulation. The Advanced Therapies Regulation
became applicable across the European Union on December 30, 2008, and provides that tissue engineered products must be authorized by the European Medicines Agency through a specific procedure, before they can be marketed in the European
Economic Area. Under this procedure, the European Medicines Agency Committee for Advanced Therapies provides an opinion on the quality, safety and efficacy of each product subject to a marketing authorization application. This opinion is then sent
to the Committee for Medicinal Products for Human Use, which is the committee responsible for human medicines at the European Medicines Agency. Based on the Committee for Advanced Therapies opinion, the Committee for Medicinal Products for
Human Use adopts a recommendation on whether to grant the marketing authorization. This procedure inside the European Medicines Agency has to be concluded within 210 days from the filing of the application, which period does not include any
clock-stops for the application to provide answers to questions from the European Medicines Agency. The recommendation is then sent to the European Commission for a decision to grant a marketing authorization that will enable the holder to market
the product throughout the European Economic Area. In case of an unfavorable opinion by the Committee for Medicinal Products for Human Use, the applicant may request the re-examination of its application. In such cases, the Committee for Medicinal
Products for Human Use has 60 days following receipt of the grounds for the request to re-examine the application in consultation with the Committee for Advanced Therapies.

Under the Advanced Therapies Regulation, Advanced Therapy Medicinal Products that incorporate as an integral part of the product one or more medical devices and where the cellular or tissue part of the
product

contains viable cells or tissues, or non-viable cells or tissues whose action upon the human body can be considered as primary to that of the medical device, are classified as Combined Advanced
Therapy Medicinal Products. To ensure an appropriate level of quality and safety, the medical device part of a Combined Advanced Therapy Medicinal Product must meet the essential requirements laid down in the E.U. Medical Devices Directive
(Directive No 93/42/EEC) and the marketing authorization application shall include evidence of conformity with the essential requirements. To enable the European Medicines Agency to verify compliance with the essential requirements, the marketing
authorization application for the Combined Advanced Therapy Medicinal Product must include, where available, the results of the assessment of the medical device by a European Economic Area Notified Body. If the results of Notified Body assessment
are not available at the time of the submission of the marketing authorization application, the European Medicines Agency will seek an opinion on the conformity of the device part with the essential requirements of the E.U. Medical Device Directives
from a Notified Body that is identified in conjunction with the application.

The determination of whether a product is
classified as an ATMP or a Combined ATMP is often complex, and the Advanced Therapies Regulations provides companies with the possibility of requesting a scientific recommendation from the EMA with respect to the adequate classification of their
product. The EMA must deliver its recommendation after consultation with the European Commission within 60 days after receipt of such request.

The Advanced Therapies Regulation imposes on Advanced Therapy Medicinal Product marketing authorization holders risk management, and post-authorization follow-up of efficacy and adverse reactions,
requirements that may go beyond those required from non-Advanced Therapy Medicinal Products. Furthermore, the manufacturer has to detail the envisaged measures in this regard in the marketing authorization application. Further, the Advanced
Therapies Regulation also imposes labeling, packaging and summary of product characteristic and traceability requirements that are specific to Advanced Therapy Medicinal Products.

Finally, the Advanced Therapies Regulation mandated the European Commission to draw up, after consultation with the European Medicines
Agency, detailed guidelines on good clinical practices and good manufacturing practices specific to Advanced Therapy Medicinal Products, but these guidelines are yet to be adopted. To date, Directive No. 201/20/EC also applies to tissue
engineering products and contains some requirements that are stricter than the general requirements for clinical trials for medicinal products.

Intellectual Property

We believe that to have a competitive advantage we must develop, maintain and protect the proprietary aspects of our technologies. We
rely on a combination of patent, trademark, trade secret and other intellectual property laws, nondisclosure agreements and other measures to protect our intellectual property rights. We require our vendors, employees, consultants and advisors to
execute confidentiality agreements. We also require our employees, consultants and advisors who develop intellectual property for us to assign to us their rights to all intellectual property conceived in connection with their relationship with us.
We cannot be certain that employees and consultants will abide by the confidentiality or assignment terms of these agreements. In addition, despite measures we take to protect our intellectual property, unauthorized parties might obtain or use
information that we regard as proprietary. Any patents or other intellectual property issued to us may be challenged by third parties as being invalid. For further details on these and other risks related to our intellectual property, see Risk
FactorsRisks Related to our BusinessOur patents and other intellectual property rights may not adequately protect our products.

In addition to patents, we also rely on trade secrets, know-how and other unpatented technology. Our key know-how includes the processes and methods that we use to manufacture Dermagraft. We seek to
protect such property in part by entering into confidentiality agreements with our vendors, employees, consultants and others who may have access to proprietary information.

Our manufacture and use of Dermagraft and TransCyte is further protected from competition
due to the lack of an abbreviated generic pathway within the medical device area for a PMA-approved product, unlike the pathway that exists for drugs under Sections 505(b)(2) and 505(j) of the Federal Food, Drug, and Cosmetic Act. While the Patent
Protection and Affordable Care Act; Public Law No: 111-148 that was signed into law on March 23, 2010 provided the FDA with the flexibility to create a pathway for approval of biogenerics, as well as the ability to grant 12 years of exclusivity
for new biologics, these provisions do not apply to PMA-approved products such as Dermagraft and TransCyte, which are categorized as devices. While the Food and Drug Modernization Act of 1997 enacted a six-year provision designed to allow the use of
data contained in a PMA to support a competitors application for a PMA for a similar device, the agency has not yet implemented the use of this provision.

Where appropriate, to protect our intellectual property rights related to our products, we apply for U.S. and foreign patents. As of December 31, 2010, we had 18 issued patents in the United States,
as well as three issued foreign patents that cover the same technology as our U.S. patents. Our patents that have been issued or might be issued may not adequately protect our intellectual property rights. Our U.S. patents are typically granted for
a term of 20 years from the date a patent application is filed. The actual protection afforded by a foreign patent may vary from country to country, depending upon the laws of such country. Our issued patents are expected to expire on various dates
between 2012 and 2021, including two of our key patents covering three-dimensional cell, skin and tissue culturing, which we use in the manufacturing of Dermagraft, that are expected to expire in 2012. In addition, our key patent covering production
of a temporary living skin replacement, which we use in the manufacture of TransCyte, is expected to expire in 2012. Outside of these key patents, we also have eight other supporting patents that we acquired from Smith & Nephew related to the
manufacturing and shipping of living cell-based products, such as Dermagraft and TransCyte. Of the remaining supporting patents, we expect that two covering a three-dimensional cell and tissue culture system will expire in 2013, two generally
covering naturally secreted extracellular matrix will expire in 2015, one covering growth and packaging of three-dimensional cell and tissue culture systems will expire in 2015 and one related patent will expire in 2016, one covering cells or
tissues with increased protein factors will expire in 2018 and one covering shipping and storing frozen products will expire in 2021. We do not expect that the expiration of these patents will have a material affect on our business because of the
protection provided by the proprietary nature of our manufacturing processes, our reliance upon trade secrets and know-how to protect our products, and the substantial capital expenditures that any potential competitor would need to incur to
establish and validate a manufacturing facility and obtain FDA approval for a competing product.

We have also registered and
filed applications to register 13 trademarks with the U.S. Patent and Trademark Office and appropriate offices in foreign countries where we do business to distinguish our products from our competitors products.

Product History

Dermagraft and TransCyte were originally developed by Advanced Tissue Sciences, Inc., a company founded in 1987. TransCyte received a PMA
from the FDA for the treatment of certain types of severe burns in 1997 and Dermagraft received a PMA from the FDA for the treatment of certain types of DFUs in 2001. Smith & Nephew acquired Dermagraft and TransCyte and all related assets
from Advanced Tissues Sciences in 2002. In 2006, we acquired Dermagraft and TransCyte and all related assets from Smith & Nephew in an asset purchase transaction. The primary consideration in such asset purchase transaction was our
assumption and performance of Smith & Nephews existing contractual obligations related to the Dermagraft assets, as well as entering into sublease agreements with Smith & Nephew for our office, manufacturing and warehouse space in La
Jolla, California and payment of a cash purchase price upon closing of the transaction. The acquisition had no effect on the FDA clearance of the acquired products, and Smith & Nephew transferred ownership of the FDA PMAs for Dermagraft
and TransCyte effective as of the closing of the transaction. We hold all worldwide commercialization rights to Dermagraft and TransCyte.

We are not currently involved in any litigation or proceedings, individually or in the aggregate, that are likely to have a material adverse effect on our business, financial position or results of
operations.

Facilities

Our corporate headquarters are currently located in Westport, Connecticut, for which we have a lease until 2011, renewable for an additional three-year term. We lease approximately 89,000 square feet of
office, manufacturing and laboratory space in La Jolla, California, of which 56,000 square feet are manufacturing and laboratory space leased through 2021, 20,000 square feet are office space leased until 2013 and an additional 13,000 square feet
are office space leased through 2011. Additionally, we lease 5,500 square feet of office and laboratory space in Brentwood, Tennessee under a five-year lease, which will expire in 2015.

We are currently sourcing potential locations for the construction of an additional facility, which we anticipate locating in relatively
close proximity to our existing La Jolla facility. We expect to use this second facility for manufacturing additional units of Dermagraft in accordance with the protocols and procedures currently in place at our existing La Jolla facility, and to
serve as our new West Coast headquarters.

Employees

As of April 2, 2011, we had approximately 400 employees, including a commercial team of over 150 sales, marketing, reimbursement and policy professionals, a manufacturing team of over 50 employees and a
research and development team of over 30 employees. We currently operate exclusively in the United States. We have never had a work stoppage and none of our employees are represented by a labor union. We believe our relationship with our employees
is satisfactory.

Insurance

We maintain property insurance and general, commercial and product liability policies in amounts we consider adequate and customary for a business of our kind. However, because of the nature of our
business, we cannot ensure that we will be able to maintain insurance on a commercially reasonably basis or at all, or that any future claims will not exceed our insurance coverage.

The following table sets forth certain information regarding our executive officers and directors, as of May 4, 2011:

Name

Age

Position

Kevin Rakin

50

Chairman and Chief Executive Officer

Kevin C. OBoyle

55

Senior Vice President and Chief Financial Officer

Dean Tozer

44

Senior Vice President, Corporate Development

Keith OBriant

46

Senior Vice President, North American Sales

Kathy McGee

46

Senior Vice President, Operations

Stephen Bloch, M.D. (1)(3)

49

Director

David R. Dantzker, M.D. (2)(3)(4)

68

Director

Joseph (Skip) Klein (1)

50

Director

Gary J. Kurtzman, M.D. (2)

56

Director

Carol D. Winslow (1)(2)

56

Director

(1)

Member of our Audit Committee

(2)

Member of our Compensation Committee

(3)

Member of our Nominating and Corporate Governance Committee

(4)

Lead independent director

Executive
Officers

Kevin Rakin has served as our Chairman and Chief Executive Officer since February 2007. From
January 2006 until February 2007, he served as interim Chief Executive Officer as well as an executive-in-residence at Canaan Partners. Previously, Mr. Rakin was a founder and President & Chief Executive Officer of Genaissance
Pharmaceuticals, Inc., a publicly-held pharmacogenomics company, until its merger with Clinical Data, Inc. in October 2005. He currently serves as a board member of Ipsogen SA and on the executive committee of Connecticut United for Research
Excellence (CURE), Connecticuts bioscience cluster. Mr. Rakin previously served as a board member of Vion Pharmaceuticals, Inc., OMRIX Biopharmaceuticals Ltd. and Clinical Data, Inc. Mr. Rakin holds an M.B.A. from Columbia University
and received an M.S. in Finance and a B.S. in Business from the University of Cape Town. Having served as our Chief Executive Officer since February 2007, Mr. Rakins extensive knowledge of our business, history and culture, as well as
over 20 years of experience in the biotechnology industry, including holding executive leadership roles at numerous biotechnology companies, contributed to our board of directors conclusion that he should serve as a director of our company.

Kevin C. OBoyle has served as our Senior Vice President and Chief Financial Officer since December 2010.
From January 2004 until December 2009, Mr. OBoyle served as the Chief Financial Officer of NuVasive, Inc., a publicly-held medical device firm focused on spinal applications. Prior to that time, Mr. OBoyle served in various
positions during his seven years with Clarient, Inc., formerly known as ChromaVision Medical Systems, Inc., a publicly-held medical device company specializing in the oncology market, including as its Chief Financial Officer and Chief Operating
Officer. Mr. OBoyle also held various positions during his six years with Albert Fisher North America, Inc., a publicly-held international food company, before it was sold in 1996, including Chief Financial Officer and Senior Vice
President of Operations. Mr. OBoyle currently serves on the boards of GenMark Diagnostics, Inc., a publicly-held molecular diagnostics company, and Tornier N.V., a publicly-held global orthopedics company. Mr. OBoyle received
his B.S. in Accounting from the Rochester Institute of Technology and completed the Executive Management Program at the University of California, Los Angeles, Anderson School of Management.

Dean Tozer has served as our Senior Vice President, Corporate Development
since May 2009. Mr. Tozer joined us in June 2006 as Vice President of Marketing & Corporate Development. From 2000 until 2006, Mr. Tozer was a consultant to the biopharmaceutical industry assisting start-up organizations in
developing marketing and commercialization strategies for both pharmaceutical products and biomedical devices. Preceding his consulting career, he spent ten years in the global pharmaceutical industry, primarily with G.D. Searle & Company,
a division of Monsanto, where he had a wide variety of roles in global marketing, sales, business redesign and accounting and finance. Mr. Tozer also serves as an officer and board member of the Alliance for Regenerative Medicine, a non-profit
organization. He holds a Bachelor of Commerce degree from Saint Marys University in Halifax, Canada.

Keith
OBriant has served as our Senior Vice President, North American Sales since May 2009. Mr. OBriant joined us in October 2006 as Vice President of Sales, to which he brought over 17 years of healthcare sales experience. Prior
to joining us, from May 1989 to October 2006, Mr. OBriant held a variety of sales-related leadership roles with Pfizer, Inc. Most recently, he served as a Sales Director leading a group of ten district managers and more than 100 sales
representatives. Mr. OBriant holds a B.A. in Business from the University of Louisiana.

Kathy McGee
has served as our Senior Vice President, Operations since January 2011. Prior to serving in that role, she served as our Vice President and General Manager beginning in August 2008. She joined us in May 2006 as Executive Director of Operations when
we purchased the Dermagraft and TransCyte related assets from Smith & Nephew plc. Previously, Ms. McGee served for four years as Director of Manufacturing at Smith & Nephew. Prior to joining Smith & Nephew,
Ms. McGee began her career at Advanced Tissue Sciences, Inc., where she held numerous positions in manufacturing and quality control. Ms. McGee has been involved in the medical device industry, with a focus on tissue engineered medical
devices, since 1992. She holds an M.A. in Management from Webster University and a B.S. in Chemistry and Mathematics and a Higher Diploma, with honors, in Education from National University of Ireland, Galway.

Directors

Stephen Bloch, M.D. has been a member of our board of directors since September 2005. Dr. Bloch is a General Partner with
Canaan Partners and has been with the firm since 2002. His investment interests include biopharmaceutical, diagnostic, medical device and healthcare infrastructure companies. Dr. Bloch also currently serves as a board member of Liquidia
Technologies, Inc., Cylex, Inc., Marinus Pharmaceuticals, Inc. and DICOM Grid LLC. Dr. Bloch also previously served as a board member of Amicus Therapeutics, Inc., OmniSonics Medical Technologies, Inc. and Viacor, Inc. Prior to joining Canaan,
he founded Radiology Management Sciences, Inc., where he served as Chief Executive Officer from 1994 until 2001, and was a co-founder of TeleRad, Inc., a teleradiology services company. Dr. Bloch received his M.D. from the University of
Rochester, School of Medicine, his M.A. in History of Science from Harvard University, and his A.B. in History from Dartmouth College. Dr. Blochs significant experience at the board level with biotechnology companies and as a venture
capitalist in the biotechnology and medical device industries, his extensive expertise in the evaluation of financing alternatives and strategic planning for medical device companies and substantial executive leadership skills, contributed to our
board of directors conclusion that he should serve as a director of our company.

David R. Dantzker, M.D.
has been a member of our board of directors since September 2005. Dr. Dantzker has been a General Partner at Wheatley Partners, LP since 2001, where he manages Wheatleys Medical Technology and Healthcare investments. He has served on the
faculty and in leadership positions of four major research-oriented medical schools. From 2000 until 2001, Dr. Dantzker served as Chief Executive Officer of Redox Pharmaceuticals Corporation. Dr. Dantzker served as President of North
Shore-LIJ Health System, a large academic health system, from 1997 until 2000. He also co-founded The Feinstein Institute for Medical Research. From 1993 until 1997, Dr. Dantzker served as President and Chief Executive Officer of the Long
Island Jewish Medical Center. He also previously served as Chair of the American Board of Internal Medicine.

Dr. Dantzker currently serves as a board member of Comprehensive NeuroScience, Inc., OLIGOMERIX, Inc., Visionsense Ltd., Physicians for Human Rights and SurModics, Inc. He previously served
as a board member of NovaRay Medical, Inc., Valera Pharmaceuticals, Inc., Agilix Corporation, Versamed Medical Systems, Inc., before it was acquired by GE Healthcare, Neuro-Hitech, Inc. and Datascope Corp., before it was acquired by the MAQUET
Getinge Group. Dr. Dantzker holds an A.B. in Biology from New York University and received his M.D. from the State University of New York at Buffalo, School of Medicine. Dr. Dantzkers 30 years of experience in the medical technology
industry, his experience as a venture capitalist focused in the medical technology industry and his substantial leadership skills contributed to our board of directors conclusion that he should serve as a director of our company.

Joseph (Skip) Klein has been a member of our board of directors since January 2011. Mr. Klein is currently Managing
Director of Gauss Capital Advisors, LLC, a financial consulting and investment advisory firm focused on biopharmaceuticals, which he founded in March 1998. From September 2003 to December 2008, Mr. Klein also served as a Venture Partner of Red
Abbey Venture Partners, LP. From September 2001 to September 2002, Mr. Klein was a Venture Partner of MPM Capital Management, LLC, a healthcare venture capital firm. From June 1999 to September 2000, Mr. Klein served as Vice President of
Strategy and Corporate Development for Medical Manager Corporation, a developer of physician office management information systems, before it merged with WebMD Corporation. From 1989 to 1998, Mr. Klein was a healthcare investment analyst at T.
Rowe Price Associates, Inc., where he was the founding portfolio manager of the T. Rowe Price Health Sciences Fund. Mr. Klein currently serves on the board of directors of Isis Pharmaceuticals, Inc. and Savient Pharmaceuticals, Inc., as well as
on the board of private and non-profit entities. Mr. Klein also serves on the board of directors of Prospector Funds, Inc., an SEC-registered investment company. Mr. Klein previously served on the board of directors of BioMarin
Pharmaceutical Inc., Clinical Data, Inc., NPS Pharmaceuticals, Inc., OSI Pharmaceuticals, Inc. and PDL BioPharma, Inc. Mr. Klein received a B.A. in Economics from Yale University and an M.B.A. from the Graduate School of Business at Stanford
University. Mr. Kleins extensive experience as an investment analyst and mutual fund manager focused in the life sciences industry and significant experience serving as a director for various public companies contributed to our board of
directors conclusion that he should serve as a director of our company.

Gary J. Kurtzman, M.D. has been a
member of our board of directors since February 2007. Dr. Kurtzman is Managing Director and Senior Vice President of the Life Sciences Group at Safeguard Scientifics, Inc., a publicly-held provider of growth capital for life sciences and
technology companies. Dr. Kurtzman has been an executive at Safeguard Scientifics since 2006. Dr. Kurtzman currently serves on the board of directors for Alverix, Inc., NuPathe Inc., Garnet BioTherapeutics, Inc., Good Start Genetics, Inc.
and Tengion, Inc. Dr. Kurtzman was previously Managing Director and Chief Operating Officer of BioAdvance, an early stage life sciences investor, and held various positions at Pluvita Corporation, Genovo, Inc., Avigen, Inc. and Gilead Sciences,
Inc. He also previously served on the board of directors for Avid Radiopharmaceuticals, Inc. and Molecular Biometrics, Inc. Dr. Kurtzman is currently a lecturer in healthcare entrepreneurship at The Wharton School of the University of
Pennsylvania. Dr. Kurtzman received his B.A. from Stanford University and his M.D. from Washington University and completed his post-doctoral training at the National Heart, Lung and Blood Institute and Stanford University.
Dr. Kurtzmans extensive expertise in strategic planning for life sciences and technology companies, significant experience serving as a director for various life sciences companies, substantial executive leadership skills and strong
scientific background contributed to our board of directors conclusion that he should serve as a director of our company.

Carol D. Winslow has been a member of our board of directors since February 2007. Ms. Winslow is a founder and a Principal
of Channel Medical Partners, a venture capital firm focused on investing in medical technology and diagnostics companies, a position she has held since 1999. She is also a founder and President of MedTech Value Creation Strategies Group, a medical
and diagnostic technology consulting firm. From 1996 until 1998, Ms. Winslow was a Managing Director and Senior Medical Device Analyst at Jefferies & Company, Inc. Prior to that, Ms. Winslow was the Senior Medical Device Analyst
at Vector Securities International, Inc. and Dain Bosworth Incorporated, from 1990 until 1996 and from 1988 until 1990, respectively. From 1979 to

1988, Ms. Winslow held a variety of management positions with Medtronic, Inc. She has served on the boards of directors of several private and public medical technology companies in
Channels investment portfolio, including Alsius Corporation, before it was acquired by Zoll Medical Corporation, and Northstar Neuroscience, Inc., and currently serves on the board of the American Refugee Committee, a non-profit organization.
Ms. Winslow received her B.A. from Mount Holyoke College and an M.B.A. from the University of Minnesota. Ms. Winslows more than 30 years of experience in the medical technology industry, her membership on other companies boards
of directors and her significant experience in evaluating companies in the medical technology industry contributed to our board of directors conclusion that she should serve as a director of our company.

Board of Directors

Composition
and Election of Directors

Our board of directors is currently authorized to have up to nine members and is
currently composed of five non-employee members and our current Chief Executive Officer, Kevin Rakin. Each of our non-employee directors, Stephen Bloch, M.D., David R. Dantzker, M.D., Joseph (Skip) Klein, Gary J. Kurtzman, M.D. and Carol D. Winslow,
is independent within the meaning of the independent director standards of the Securities and Exchange Commission, or SEC, and the New York Stock Exchange, or NYSE.

All of the current directors were elected pursuant to the board composition provisions of an investor rights agreement among our company and individuals and entities that hold all of the outstanding
shares of our convertible preferred stock. Upon the completion of this offering, the board composition provisions of the investor rights agreement will terminate and there will be no further contractual obligations regarding the election of
directors.

In accordance with the terms of our amended and restated certificate of incorporation that will become effective
upon the completion of this offering, the board will be divided into three classes, with the classes serving for staggered three-year terms. The initial members of the classes will be as follows:



the class I directors will be Drs. Bloch and Kurtzman and their terms will expire at the annual meeting of stockholders to be held in 2012;



the class II directors will be Mr. Klein and Ms. Winslow and their terms will expire at the annual meeting of stockholders to be held in 2013; and



the class III directors will be Dr. Dantzker and Mr. Rakin and their terms will expire at the annual meeting of stockholders to be held in 2014.

Upon the expiration of the term of a class of directors, directors in that class will be eligible to be
elected for a new three-year term at the annual meeting of stockholders in the year in which their term expires.

Our amended and restated certificate of incorporation and amended and restated bylaws, each to be effective upon the completion of this offering, provide that our directors may be removed only for cause
by the affirmative vote of the holders of at least 66 2/3% of the votes that all our stockholders would be entitled to cast in an annual election of directors.

Board Leadership Structure

Our board of directors is currently
chaired by Mr. Rakin, who is also our Chief Executive Officer. Our board of directors believes that Mr. Rakins service as both Chairman and Chief Executive Officer is in the best interests of our company and our stockholders.
Mr. Rakin possesses detailed and in-depth knowledge of the issues, opportunities and challenges we face, and we believe he is the person best positioned to develop agendas

that ensure that our board of directors time and attention is focused on the most critical matters. Our board of directors believes that his combined role enables decisive leadership,
ensures clear accountability and enhances our ability to communicate our message and strategy clearly and consistently to stockholders, employees and customers.

Our board of directors appointed Dr. Dantzker as the lead independent director to help reinforce the independence of the board of directors as a whole. The position of lead independent director has been
structured to serve as an effective balance to a combined Chief Executive Officer and Chairman role. As the lead independent director, Dr. Dantzker is empowered to, among other duties and responsibilities, review and provide input on the
agendas for meetings of the board of directors, chair executive sessions in the absence of the Chairman, serve as a liaison between the Chairman and the independent directors and serve as an independent point of contact for management and others
wishing to communicate to the board of directors other than through the Chairman. As reinforcement of the importance of an independent board of directors, the independent directors routinely meet outside the presence of our management, including
Mr. Rakin. For all of these reasons, the board of directors believes that the lead independent director can help ensure the effective independent functioning of the board of directors in its oversight responsibilities.

Risk Oversight

Our board of directors has responsibility for the oversight of the companys risk management processes and, either as a whole or
through its committees, regularly discusses with management our major risk exposures, their potential impact on our business and the steps we take to manage them. The risk oversight process includes receiving regular reports from board committees
and members of senior management to enable our board to understand the companys risk identification, risk management and risk mitigation strategies with respect to areas of potential material risk, including operations, finance, legal,
regulatory, strategic and reputational risk.

The audit committee reviews information regarding liquidity and operations, and
oversees our management of financial risks. Periodically, the audit committee reviews our policies with respect to risk assessment, risk management, loss prevention and regulatory compliance. Oversight by the audit committee includes direct
communication with our external auditors, and discussions with management regarding significant risk exposures and the actions management has taken to limit, monitor or control such exposures. The compensation committee is responsible for assessing
whether any of our compensation policies or programs has the potential to encourage excessive risk-taking. The nominating and corporate governance committee manages risks associated with the independence of the board, corporate disclosure practices,
and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board is regularly informed through committee reports about such risks. Matters of
significant strategic risk are considered by our board as a whole.

Board Diversity

Our nominating and corporate governance committee is responsible for reviewing with the board of directors the appropriate
characteristics, skills and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the nominating and corporate
governance committee, in recommending candidates for election, and the board of directors, in approving (and, in the case of vacancies, appointing) such candidates, takes into account many factors, including: personal and professional integrity,
ethics and values; experience in corporate management, such as serving as an officer or former officer of a publicly-held company; commercialization experience in large pharmaceutical companies; strong finance experience; experience relevant to our
industry; experience as a board member of another publicly-held company; diversity of expertise and experience in substantive matters pertaining to our business relative to other board members; diversity of background and perspective; and practical
and mature business judgment. The board of directors evaluates each individual in the context of the board of directors as a whole, with the objective of assembling a group that can best maximize the

success of our business and represent stockholder interests through the exercise of sound judgment using its diversity of experience in these various areas.

Committees

The
board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Our board of directors may establish other committees as it deems necessary or appropriate from time to time to
facilitate the management of our business.

Audit Committee

The members of the audit committee are Mr. Klein, Dr. Bloch and Ms. Winslow, each of whom our board of directors has
determined is independent within the meaning of the independent director standards of the SEC and NYSE. Mr. Klein chairs the audit committee. Each of the members of our audit committee satisfies the requirements for financial literacy under the
current requirements of the NYSE rules. The board of directors has determined that Mr. Klein is an audit committee financial expert as defined in applicable SEC rules.

The audit committees main function is to oversee our accounting and financial reporting processes, internal systems of control,
independent registered public accounting firm relationships and the audits of our financial statements. The audit committees responsibilities include, among other things:



appointing and assessing the independence, qualifications and performance of our registered public accounting firm;



approving the audit and non-audit services to be performed by our independent registered public accounting firm;



overseeing the work of our registered public accounting firm, including through the receipt and consideration of reports from such firm;



reviewing and discussing the results of our annual audit and the review of our quarterly unaudited financial statements and related disclosures with
management and the registered public accounting firm;

reviewing and approving or ratifying any related-person transactions; and



reviewing and evaluating, at least annually, the performance of the audit committee and its members, including compliance of the audit committee with
its charter.

Compensation Committee

The members of the compensation committee are Drs. Dantzker and Kurtzman and Ms. Winslow. Dr. Kurtzman chairs the compensation
committee. Each member of our compensation committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, is an outside director, as defined pursuant to Section 162(m) of the
Internal Revenue Code of 1986, as amended, and satisfies the NYSE independence requirements. The purpose of the compensation committee is to assist our board of directors in determining the development plans and compensation for our executive
officers and directors and recommend these plans to our board. Specific responsibilities of the compensation committee include, among other things:

reviewing and approving the compensation of our Chief Executive Officer and other executive officers;



reviewing, approving and administering our benefit plans and the issuance of stock options and other awards under our equity incentive plans (other
than any such awards that must be approved by the full board);



reviewing and making recommendations to the board with respect to director compensation;



reviewing and discussing with management our compensation discussion and analysis to be included in our annual proxy report or annual report on Form
10-K and producing the report that the SEC requires in our annual proxy statement;



overseeing our assessment of, including reviewing reports from management or outside advisors with respect to, whether our compensation programs and
policies are reasonably likely to encourage excessive risk-taking by any employee that could reasonably be expected to have a material adverse effect on us;



reviewing and discussing any disclosure in our annual proxy statement regarding risks related to our compensation programs and policies; and



reviewing and evaluating, at least annually, the performance of the compensation committee and its members, including compliance of the compensation
committee with its charter.

Nominating and Corporate Governance Committee

The members of our nominating and corporate governance committee are Drs. Bloch and Dantzker, each of whom our board of directors has
determined satisfies the NYSE independence requirements. Dr. Bloch chairs this committee. The purpose of our nominating and corporate governance committee is to assist our board of directors by indentifying individuals qualified to become
members of our board of directors, consistent with criteria set by our board, and to develop our corporate governance principles. Our nominating and corporate governance committees responsibilities include, among other things:



evaluating the composition, size and governance of our board of directors and its committees and making recommendations regarding future planning and
the appointment of directors to our committees;

administering a policy for considering stockholder nominees for election to our board of directors;



evaluating and recommending individuals qualified to become members of the board of directors;



developing guidelines for board compensation;



developing and recommending to the board corporate governance principles;



overseeing our board of directors performance and self-evaluation process; and



reviewing and evaluating, at least annually, the performance of the nominating and corporate governance committee and its members, including compliance
of the nominating and corporate governance committee with its charter.

Compensation Committee Interlocks and Insider
Participation

None of the executive officers serves, or served during 2010, as a member of the board of directors or
compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers serving as members of our board of directors or compensation committee. None of the members of the compensation
committee has ever been one of our employees.

Code of Business Conduct and Ethics

We have adopted a code of business conduct and ethics that applies to our officers, directors and employees. We expect that our code of
business conduct and ethics will be available on our website at www.abh.com upon the completion of this offering. We intend to disclose any amendments to the code, or waivers to its requirements, on our website.

Corporate Governance Guidelines

The board of directors has adopted corporate governance guidelines to assist the board in the exercise of its duties and responsibilities and to serve the best interests of our company and stockholders.
These guidelines establish a framework for the conduct of the boards business and, in particular, provide that:



the boards principal responsibility is to oversee the management of our company;



a majority of the members of the board shall be independent directors;



the independent directors shall meet regularly in executive session;



directors shall have full and free access to management and, as necessary and appropriate, independent advisors;



new directors shall participate in an orientation program and all directors will be expected to participate in continuing director education on an
ongoing basis; and



at least annually, the board and its committees shall conduct self-evaluations to determine whether they are functioning effectively.

Limitation on Liability and Indemnification Matters

Our amended and restated certificate of incorporation and our amended and restated bylaws, each of which will become effective upon the
closing of this offering, will provide that we will indemnify our directors

and officers to the fullest extent permitted by the Delaware General Corporation Law. Consequently, our directors and officers will not be indemnified for any of the following:



any breach of the directors duty of loyalty to us or our stockholders;



any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;



unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or



any transaction from which the director derived an improper personal benefit.

Our amended and restated certificate of incorporation and our amended and restated bylaws will also provide that if Delaware law is
amended to authorize corporate action further eliminating or limiting the personal liability of a director, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law, as so amended. This
limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.

Our amended and restated certificate of incorporation and our amended and restated bylaws also will provide that we shall have the power
to indemnify our employees and agents to the fullest extent permitted by law. Our amended and restated bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her
actions in this capacity, regardless of whether our amended and restated bylaws would permit indemnification.

We have
entered, and expect to continue to enter, into indemnification agreements with our directors, executive officers and other employees as determined by our board of directors, in addition to indemnification provided for in our amended and restated
certificate of incorporation and amended and restated bylaws. These agreements, among other things, provide for indemnification of our directors and executive officers for expenses, judgments, fines and settlement amounts incurred by this person in
any action or proceeding arising out of this persons services as a director or executive officer or at our request. We believe that these provisions in our amended and restated certificate of incorporation, amended and restated bylaws and
indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors and officers liability insurance.

The above description of the indemnification provisions of our amended and restated certificate of incorporation, our amended and
restated bylaws and our indemnification agreements is not complete and is qualified in its entirety by reference to these documents, each of which is attached as an exhibit to this registration statement.

The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and
restated bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action,
if successful, might benefit us and other stockholders. Further, a stockholders investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers pursuant to these
indemnification provisions. Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers or persons controlling us, we have been informed that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, and we are not aware
of any threatened or pending litigation that may result in claims for indemnification by any director.

This
compensation discussion and analysis provides information about the material components of our executive compensation program for our named executive officers, consisting of the following persons:

Specifically, this compensation discussion and analysis provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program, and each compensation
component that we provide to our named executive officers. In addition, we explain how and why the compensation committee and our board of directors arrived at specific compensation policies and decisions involving our named executive officers
during the fiscal year ended January 1, 2011. The actual amount and form of compensation and the compensation programs that we adopt may differ materially from current or planned programs as summarized in this discussion.

Our compensation program is overseen and administered by the compensation committee of our board of directors, which currently is
comprised of Gary Kurtzman, M.D., who serves as the Chairman, David R. Dantzker, M.D. and Carol Winslow. Each of Dr. Kurtzman, Dr. Dantzker and Ms. Winslow qualify as (1) an independent director under the rules of the
New York Stock Exchange, (2) a non-employee director, as defined in Rule 16b-3 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and (3) an outside director under Section 162(m) of the
Internal Revenue Code of 1986, as amended, or the Code.

Objectives and Principles of Our Executive Compensation

The guiding principle in the development of our executive compensation strategy is to create and nurture a
pay-for-performance culture. The compensation committee believes that compensation paid to the named executive officers should be closely aligned with company and individual performance on both a short-term and long-term basis. Following this
philosophy, the compensation committee has established a set of objectives for our executive compensation program. These objectives are as follows:



Compensation should be market competitive. Our executive compensation program is designed to provide competitive compensation relative to the
labor markets for our executives while maintaining fiscal responsibility for our stockholders, allowing us to attract and retain the best and most talented employees.



Compensation should support our business strategy. Our compensation program is designed to align named executive officer compensation with our
corporate strategies, business objectives and the long-term interests of our stockholders by rewarding successful execution of such strategies and objectives.

Compensation should reward performance. A portion of our named executive officers total compensation opportunity is variable and dependent
upon the achievement of corporate objectives and individual performance on an annual basis.



Compensation should be aligned with stockholders interests. Our executive compensation program also seeks to reward our named executive
officers for increasing our stock price over the long term and maximizing stockholder value by providing a portion of total compensation opportunities for our named executive officers in the form of direct ownership in our company through stock
options.

There are three main elements of total compensation for our named executive officers: base salary,
annual cash bonus and long-term equity awards in the form of stock options. Our named executive officers are also eligible for other elements of compensation, including health and retirement benefits. To the extent that we provide our named
executive officers with any perquisites or benefits beyond those provided to all other employees, we expect that such arrangements will be limited in scope. All of these elements are considered by the compensation committee in setting the terms of
executive compensation. We also provide our named executive officers with severance and change in control arrangements. These agreements are described below under Employment Agreements.

Our executive compensation program combines these short-term and long-term and cash and non-cash components in amounts and proportions
that we believe are most appropriate to incentivize and reward our named executive officers for achieving our objectives. Our current compensation programs reflect our corporate growth and our venture-backed origins in that they consist primarily of
salary and stock options for our named executive officers. We strive to achieve an appropriate mix between equity incentive awards and cash payments in order to meet our objectives. Any apportionment goal is not applied rigidly and does not control
our compensation decisions, and our compensation committee does not have any policies for allocating compensation between long-term and short-term compensation or cash and non-cash compensation.

We anticipate increasing the flexibility and elements of our compensation structure going forward, while striving to maintain
transparency, simplicity and a clear pay-for-performance orientation. As our needs evolve, we intend to continue to evaluate our philosophy and compensation programs as circumstances require, and we will review executive compensation annually.

Compensation Determination Process

The compensation committee of our board of directors develops, reviews and approves each of the elements of the executive compensation program of our company as a whole and for our named executive
officers individually, although the full board of directors still makes certain compensation decisions with respect to our named executive officers when the compensation committee deems it to be appropriate. The compensation committee also regularly
assesses the effectiveness and competitiveness of our compensation programs.

Generally in the first quarter of each year, the
compensation committee reviews the performance of each of our named executive officers during the previous year. At this time the compensation committee also reviews our performance relative to the corporate performance objectives set for that year
and makes the final bonus payment determinations based on our performance and the compensation committees evaluation of each named executive officers individual performance for the prior year. In connection with this review, the
compensation committee also reviews and adjusts, as appropriate, annual base salaries for our named executive officers and grants, as appropriate, additional stock option awards to our named executive officers and certain other eligible employees
for the coming fiscal year.

Our compensation committee meets in executive session, and our Chief Executive Officer does not attend compensation committee discussions where recommendations are made regarding his compensation. Our
Chief Executive Officer does not provide input into setting his level of pay, which is under the purview of the compensation committee and board of directors. He also abstains from voting in sessions of the board of directors where the board of
directors acts on the compensation committees recommendations regarding his compensation.

Role of Compensation
Consultant and Comparable Company Information

Our compensation committee has the authority to engage the services of
outside consultants to assist it in making decisions regarding the establishment of our compensation programs and philosophy. Our compensation committee has retained Radford, an Aon Hewitt Company, as its compensation consultant since 2009 to advise
the compensation committee in matters related to executive and director compensation and to assist the compensation committee with a review of competitive compensation practices of comparable companies, as further described below. Radford has not
provided any other services to us beyond its engagement as an advisor to the compensation committee on executive and director compensation matters.

In September 2009, Radford provided advice to the compensation committee with respect to competitive practices and the amounts and nature of compensation paid to executive officers in comparable
companies. Radford also advised on, among other things, our executive severance and change in control arrangements and determining the appropriate levels of salary and bonus awards for our named executive officers.

In connection with Radfords September 2009 engagement, and based on the recommendation of Radford, the compensation committee
adopted a peer group of companies for purposes of making 2010 base salary and target bonus compensation decisions for our named executive officers. This peer group of companies was chosen from both the medical device and biotechnology industries
because our business requires skill sets from both industries and it was not selected on the basis of executive compensation levels. The specific attributes used to develop the peer group included:



companies with a similar industry focus;



companies with annual revenue between $10,000,000 and $450,000,000;



companies with market valuations between $120,000,000 and $1,500,000,000;



companies with headcount generally between 200 to 600 employees; and



companies that are profitable or nearing profitability.

The peer group selected by the compensation committee represents a subset of the publicly-traded companies with the attributes listed above and represents those companies that the compensation committee
determined were most similar to us by placing primary emphasis on the number of employees, annual revenue

and market valuations of such companies and secondary emphasis on the revenue growth and profitability of such companies. In selecting the companies meeting these criteria for the peer group, no
specific formula or policy was applied to the determination of the peer group and the final composition of the peer group reflects the compensation committees determinations based on the judgment of its members and the recommendations of
Radford.

The peer group for 2010 was comprised of following companies:

 Abiomed, Inc.

 Kensey Nash Corporation

 Alphatec Holdings, Inc.

 Meridien Bioscience, Inc.

 Auxilium Pharmaceuticals, Inc.

 Micrus Endovascular Corporation

 Clarient, Inc.

 NuVasive, Inc.

 Conceptus, Inc.

 Orthovita, Inc.

 Cubist Pharmaceuticals, Inc.

 Osiris Therapeutics, Inc.

 Emergent BioSolutions, Inc.

 RTI Biologics, Inc.

 Enzon Pharmaceuticals, Inc.

 SurModics, Inc.

 Exactech, Inc.

 Synovis Life Technologies, Inc.

 Harvard Bioscience, Inc.

 ViroPharma Incorporated

Although the peer group data is collected for executive compensation review purposes, the peer group compensation data is limited to
publicly available information and therefore does not necessarily provide comparisons for all officers by position as is offered by more comprehensive survey data, which has the advantage of including data on executive positions beyond what is
available in public filings. In addition, the pool of senior executive talent from which the company draws and against which it compares itself extends beyond the immediate peer group and is represented by the survey data. As a result, the
compensation committee uses a combination of industry survey data and peer group data to analyze the overall competitiveness of the companys compensation. In light of this, and in connection with this review in September 2009, Radford also
provided our compensation committee with competitive market data obtained from the following compensation surveys:



Radford Global Life Sciences Pre-IPO Surveythe scope of the data included from this survey was private life sciences companies located throughout
the United States with more than $80 million of invested capital.



Dow Jones Venture One Compensation Pro Surveythe scope of the data included from this survey was private, later stage biotechnology and medical
device companies located throughout the United States.



Radford Executive Survey Suitethe scope of the data included from this survey was public and private medical device companies with annual
revenues between $0 million and $500 million and public and private biotechnology and pharmaceutical companies with annual revenues between $50 million and $400 million and less than 500 employees.

In December 2010, based on the recommendation of Radford, our compensation committee adopted a revised peer group of companies for
purposes of making 2011 compensation decisions for our named executive officers. Again, the peer group was not selected on the basis of executive compensation levels. The specific attributes used to develop the peer group included:



companies with a similar industry focus;



companies with annual revenue between $50,000,000 and $550,000,000;



companies with market valuations between $250,000,000 and $2,000,000,000;

companies with headcount generally between 150 and 1,200 employees; and



companies that are profitable or nearing profitability.

Our peer group for 2011 is comprised of following companies:

 AngioDynamics, Inc.

 Insulet Corporation

 Clarient, Inc.

 Micrus Endovascular Corporation

 Conceptus, Inc.

 Natus Medical, Inc.

 Cubist Pharmaceuticals, Inc.

 NuVasive, Inc.

 DexCom, Inc.

 NxStage Medical, Inc.

 Emergent BioSolutions, Inc.

 Quidel Corporation

 Exactech, Inc.

 SurModics, Inc.

 Genomic Health, Inc.

 Thoratec Corporation

 Genoptix, Inc.

 ViroPharma, Inc.

 Ikaria, Inc.

 Volcano Corporation

In December 2010, Radford also provided our compensation committee with updated competitive market data obtained from the following
compensation surveys for the reasons described above:



Radford Global Life Sciences Compensation Surveythe scope of the data included from this survey was public biotechnology and pharmaceutical
companies located throughout the United States, with between 200 and 800 employees, which consisted of 39 companies with a median revenue of $128 million and a median headcount of 346 employees. This survey was given a 20% weighting.



Radford Survey Suitethe scope of the data included from this survey was medical device companies with annual revenues between $50 million and
$500 million, which consisted of 28 companies with median revenue of $136 million and a median headcount of 383 employees. This survey was given an 80% weighting.

With respect to the foregoing survey data not relating to our 2010 and 2011 peer groups that was reviewed by the compensation committee,
the identities of the individual companies included in the surveys were not provided to the compensation committee, and the compensation committee did not refer to individual compensation information for such companies. Instead, the compensation
committee only referred to the statistical summaries of the compensation information for the companies included in such surveys.

We believe that by utilizing both publicly available peer group data and the survey data from the published surveys described above, we are able to develop the best set of competitive data for use in
making compensation decisions. Note that throughout this discussion, any reference to pay positioning refers to an approximate average of the peer group and the survey data sets unless specifically stated otherwise.

While we believe that comparisons to market data are a useful tool, we do not believe that it is appropriate to establish executive
compensation levels based solely on a comparison to market data. Historically, while competitive market compensation paid by other companies is reviewed by the compensation committee, the compensation committee does not attempt to set compensation
at a certain target percentile within the market comparison group or otherwise rely entirely on that data to determine named executive officer compensation. Instead, compensation information for the market comparison group has been used by the
compensation committee to incorporate flexibility into our compensation programs and in the assessment process to respond to

and adjust for the evolving business environment and other factors described above. The compensation committee relies upon the judgment of its members in making executive compensation decisions,
after reviewing the following factors:



our performance against corporate objectives for the previous year;



value of the executives unique leadership and other skills and capabilities to support our long-term performance;



historical compensation versus performance;



status relative to similarly-situated executives from our comparison group or from compensation surveys; and



the executives performance generally for the previous year.

We do not yet have a formal policy to adjust or recover awards or payments if the relevant performance measures upon which they are based
are restated or are otherwise adjusted in a manner that would otherwise reduce the size of the initial payment or award.

The
compensation levels of the named executive officers reflect to a significant degree their varying roles and responsibilities. Mr. Rakin, in his role as the Chairman and Chief Executive Officer, had the greatest level of responsibility among our
named executive officers and, therefore, received the highest level of pay. This is also consistent with competitive practices among our peer group companies.

Components of Our Executive Compensation Program

Base
Salary. Our compensation strategy has been to secure the talent we need in a way that carefully manages our cash resources. As a general matter, the base salary for each named executive officer is initially established through negotiation at the
time the officer is hired, taking into account the officers qualifications, experience, prior salary and competitive salary information and internal pay equity comparisons. Salaries are reviewed on an annual basis by our compensation
committee, taking into account the factors described above. Salaries are also reviewed in the case of promotions or other significant changes in responsibilities. No formulaic base salary increases are provided to the named executive officers.

In February 2010, our compensation committee increased base salaries for three of our named executive officers: Messrs. Tozer
and OBriant and Ms. McGee. The compensation committee made these adjustments after considering the factors described above and reviewing information regarding base salaries among our market comparison group prepared by Radford.
Mr. Rakin did not receive a base salary adjustment in 2010 because it was determined to be competitively positioned as well as appropriate relative to the base salaries of our other named executive officers.

Named Executive Officer

2009 Base Salary

2010 Base Salary

Percentage Increase

Dean Tozer

$

230,000

$

245,000

6.5

%

Keith OBriant

$

230,000

$

240,000

4.3

%

Kathy McGee

$

185,600

$

208,000

12.1

%

Following the foregoing adjustments, when compared to competitive practices, the base salaries of our named executive
officers fell between the 25th and 50th percentiles of our market comparison group at the time of such
adjustments, a range identified by the compensation committee as appropriate for our stage of development. Ms. McGee received a larger percentage increase to her base salary due to the fact that her 2009 base salary was more significantly below
this range than were the base salaries of the other named executives.

Mr. OBoyle was appointed our Senior Vice President and Chief Financial Officer in
December 2010 and our compensation committee set his initial base salary at $310,000, which base salary was determined based on negotiations with Mr. OBoyle.

In February 2011, in connection with the renegotiation of his employment agreement, the compensation committee
increased Mr. Rakins base salary from $382,500 to $460,000. This base salary increase was based on negotiations with Mr. Rakin and input from Radford. Also in February 2011, the compensation committee
determined to increase the base salaries of Mr. Tozer, Mr. OBriant and Ms. McGee to $270,000, $270,000 and $250,000, respectively. These increases were all effective retroactive to January 1, 2011. Based on the competitive market information
provided by Radford, the compensation committee felt it was appropriate to align these named executive officers 2011 base salaries with the 25th percentile of the 2011 market comparison group.

Bonuses. In addition to base salaries, the compensation committee has the authority to award annual cash bonuses to our named
executive officers, which annual bonuses are intended to compensate our named executive officers for achieving corporate objectives and for individual performance during the relevant year.

Our annual corporate objectives are determined by management each year and approved by the compensation committee or the board of
directors. These objectives and the proportional emphasis placed on each are set by the compensation committee after considering management input and our overall strategic objectives. These objectives generally relate to factors such as financial
targets, achievement of product development objectives and research and development activities. The individual component of each named executive officers bonus is not necessarily based on the achievement of any predetermined criteria or
guidelines but rather on the compensation committees more subjective assessment of the officers overall performance of his or her duties. In coming to this determination, the compensation committee does not follow any guidelines, nor are
there such standing guidelines regarding the exercise of such discretion.

The compensation committee determines the level of
achievement of the corporate objectives for each year, determines each named executive officers level of achievement for annual bonus determination purposes and approves the final bonus amounts to be paid to our named executive officers. The
compensation committee retains the discretion to increase, reduce or eliminate any bonus that otherwise might be payable to any individual based on actual performance, which may include consideration of factors outside approved goals and objectives.

Pursuant to the terms of their employment agreements with us, all of our named executive officers are eligible to receive an
annual performance bonus. For 2010, each named executive officers target bonus was set at 50% of base salary. The target bonuses for our named executive officers were set at 50% of base salary in 2007 in connection with our commencement of
operations and, with the exception of the increase to Mr. Rakins target bonus for 2011 described below, have remained unchanged since that time. As such, these target bonuses were not set by reference to comparable company data.
Mr. OBoyles target bonus is also 50% of his base salary and was established in connection with his commencement of employment in December 2010 to be in line with the other named executive officers.

In February 2011, in connection with the renegotiation of his employment agreement, the compensation committee set
Mr. Rakins target bonus percentage for 2011 at 75% of base salary. This target was based on negotiations with Mr. Rakin and input from Radford. Based on the competitive market information provided by Radford, the compensation committee felt it
was appropriate to align Mr. Rakins 2011 target short-term cash compensation with the 50th percentile of the 2011 market comparison group.

For our named executive
officers other than our Chief Executive Officer, 50% of the total annual bonus is tied to achievement relative to the annual corporate performance goals and 50% is tied to individual performance during the relevant year. The calculation of the bonus
to be paid to our Chief Executive Officer is entirely dependent upon the achievement of our corporate performance goals. There is no minimum level of corporate or individual performance required as a condition to the payment of bonuses and,
therefore, bonuses may be as low as zero. In addition, the compensation committee has not specified a limit or cap on annual bonuses that may be payable to our named executive officers for any given year. Instead, the decision as to whether to pay
bonuses in excess of the targeted levels is within the discretion of the compensation committee.

In January 2010, our compensation committee established the corporate objectives for
purposes of 2010 annual performance bonuses for our named executive officers. Our 2010 corporate objectives fell into the following categories: (1) achieving annual revenue of at least $130 million (25% weighting); (2) achieving certain
manufacturing milestones, including manufacturing and testing for release more than 100,000 units of Dermagraft and more than 300 units of TransCyte (25% weighting); (3) achieving an annual operating profit before research and development
investment of more than $31 million and an annual operating profit after research and development investment of more than $11 million (25% weighting); and (4) completing the patient enrollment in our ongoing pivotal trial for the use of
Dermagraft in the treatment of venous leg ulcers, or VLUs (25% weighting).

In December 2010, our compensation committee
awarded incentive compensation to our named executive officers relating to 2010 performance. With respect to the corporate objectives for 2010, the compensation committee determined that an achievement level of 150% was appropriate in light of the
companys outstanding performance relative to such goals, including over $145 million in annual revenue, manufacturing results in excess of targeted levels (107,000 units of Dermagraft), operating profit before research and development of $38.1
million and operating profit after research and development of $21.0 million, and the completed enrollment of our VLU clinical trial.

As discussed above, the analysis by the compensation committee of the achievement of each named executive officers overall individual performance was based upon numerous factors, including the input
regarding such performance provided by our Chief Executive Officer and ultimately upon a subjective evaluation by the compensation committee of each named executive officers individual contributions to the company during the year.

The compensation committees determination of our named executive officers achievement relative to his or her individual
component of the annual bonuses ranged between zero, in the case of Mr. Tozer, and 100%, with respect to Ms. McGee and Mr. OBriant. As discussed above, the compensation committees determination of the individual components
of the 2010 bonus awards were not based on the achievement of any predetermined individual performance objectives, but rather on a subjective assessment of each officers overall performance of their duties and their contributions to the
company during 2010. The achievement levels and bonus payments approved by the compensation committee for the named executive officers for 2010, broken down into their corporate and individual components, are summarized in the table below: